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TUCSON SUPPLEMENTAL RETIREMENT SYSTEM (A Component Unit of the City of Tucson, Arizona) Comprehensive Annual Financial Report For Fiscal Year Ended JUNE 30, 2015 Issued by the City of Tucson, Finance Department, Retirement Division
Transcript
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TUCSON SUPPLEMENTAL RETIREMENT SYSTEM (A Component Unit of the City of Tucson, Arizona)

Comprehensive Annual Financial Report For Fiscal Year Ended

JUNE 30, 2015

Issued by the City of Tucson, Finance Department, Retirement Division

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Tucson Supplemental Retirement System June 30, 2015

Table of Contents

Introductory Section Certificate of Achievement for Excellence in Financial Reporting .......................... i Letter of Transmittal ............................................................................................. ii Organization Chart .............................................................................................. vi Administrative Organization / External Investment Managers ............................. vii

Financial Section Independent Auditors’ Report ............................................................................... 1 Management’s Discussion and Analysis .............................................................. 3

Basic Financial Statements: Statement of Fiduciary Net Position ................................................................... 8 Statement of Changes in Fiduciary Net Position ................................................ 9

Notes to Financial Statements: Summary of Significant Accounting Policies and Discussion of Plan Net Position .................................................................................... 10 Description of the Plan ........................................................................... 11 Plan Benefits ………. .............................................................................. 12 Contributions and Reserves .................................................................. 13 Net Position……… ................................................................................. 14 Investments ……………. ........................................................................ 14 Credit Risk ............................................................................................. 17 Interest Rate Risk .................................................................................. 19 Foreign Currency Risk ........................................................................... 20 Securities Lending…………………………………………………………….22 Derivatives ............................................................................................ 22 Actuarial Methods and Assumptions ...................................................... 24

Required Supplementary Information: Schedule of Changes in Net Pension Liability and Related Ratios .......... 25 Schedule of Pension Investment Returns ............................................... 26 Schedule of Contributions..…………………………………………………..27 Summary of Actuarial Methods and Assumptions ................................... 28

Other Supplemental Information: Schedule of Administrative Expenses ..................................................... 29 Schedule of Investment Services Expense ............................................. 29

Investment Section (Unaudited) Investment Consultant Letter of Investment Activity ........................................... 30 Outline of Investment Policies ............................................................................ 32 Investment Objectives ........................................................................................ 33 Individual Managers Performance Objectives .................................................... 34

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Tucson Supplemental Retirement System June 30, 2015

Table of Contents (continued)

Investment Section (Unaudited, continued) Investment Results by Year - Last Ten Fiscal Years ......................................... 35 Schedule of Investment Results ........................................................................ 36 Asset Summary by Manager and Type of Investment ........................................ 38 Manager and Asset Diversification ..................................................................... 39 Asset Allocation – Last Five Fiscal Years ........................................................... 40 Ten Largest Bond Holdings ................................................................................ 41 Ten Largest Stock Holdings ............................................................................... 41 Schedule of Fees ............................................................................................... 42 Schedule of Commissions .................................................................................. 43

Actuarial Section (Unaudited) Actuary’s Certification Letter .............................................................................. 44 Actuarial Cost Method ........................................................................................ 47 Actuarial Assumptions ........................................................................................ 48 Active Members Counts by Age and Service .................................................... 54 Schedule of Funding Progress ........................................................................... 55 Schedule of Employer Contributions .................................................................. 56 Solvency Test ................................................................................................... 57 Comparative Schedule of Annual Pension Benefits Paid ................................... 58 Schedule of Retirees and Beneficiaries Added / Removed from the Rolls .......... 59 Summary of Benefit Provisions Evaluated or Considered .................................. 60

Statistical Section (Unaudited) Discussion of Statistical Section ......................................................................... 63 Statement of Changes in Plan Net Position, Last Ten Fiscal Years .................... 64 Retired Members by Type of Benefit .................................................................. 66 Average Monthly Payments to New Retirees ..................................................... 67 Demographics of Retired and Active Members .................................................. 68 Employee and Employer Contribution Rates, Last Ten Fiscal Years .................. 69 Benefit and Refund Deductions From Net Position by Type, Last 10 FY’s ......... 70 Retiree Benefit and Service Summary ............................................................... 71

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INTRODUCTORY SECTION

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Tucson Supplemental Retirement System June 30, 2015

Introductory Section i

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Tucson Supplemental Retirement System June 30, 2015

Introductory Section ii

December 30, 2015 To the Chairman and Members of the Retirement Board, Tucson Supplemental Retirement System

The Comprehensive Annual Financial Report (CAFR) of the Tucson Supplemental Retirement System (“TSRS” or the “System”) for the year ended June 30, 2015, is herewith submitted. Responsibility for both the accuracy of the data and the completeness and fairness of the presentation rests with the management of TSRS. A narrative introduction to financial statement highlights, overview and analysis for fiscal year 2015 can be found in the Management’s Discussion and Analysis beginning on page 3 of the Financial Section. The Tucson Supplemental Retirement System was established in 1953 to provide a monthly retirement supplement to social security benefits and to the personal retirement savings of its members. The benefits provided to members are supported by payroll contributions made by active members, City contributions and investment returns from retirement system asset portfolio. For the third consecutive year, the System’s funded status improved, rising from 64.8% to 69.2% for the year ended June 30, 2015. The latest increase is primarily due to asset gains on the smoothed or actuarial value of assets, as well as liability gains due to salary increases coming in less than expected. The TSRS Board of Trustees (the “Board”) has recommended changes during the past several years specifically aimed at improving the financial sustainability of the System. In 2006, the Board initiated variable contribution rates for employees hired after June 30, 2006. In 2011, the Board implemented a reduced cost Tier II plan design for all new employees hired after June 30, 2011. In 2013, the Board adopted a funding policy that changed the amortization period from 15 to 20 years. In 2014, the Board added a rounding policy designed to pay-off the unfunded liability sooner, and reduced the assumed investment rate of return from 7.75% to 7.25%. Record keeping is the responsibility of the Human Resource Department, Employee Benefits and Retirement Section. Preparation of financial statements and control over investment responsibilities for TSRS are performed by the Accounting and Treasury Divisions of the City’s Finance Department. TSRS uses the accrual basis of accounting. This CAFR was prepared in conformance with principles of governmental accounting and reporting set forth by the Governmental Accounting Standards Board (GASB). Internal control is the responsibility of management, with an objective that they are responsible for an accounting of their stewardship of the resources entrusted to their care. Internal accounting controls provide reasonable, but not absolute, assurance that the financial statements are free of any material misstatements because the cost of a control should not exceed the benefits to be derived, the objective is to provide reasonable, rather than absolute assurance the financial statements are free of any material misstatement.

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Tucson Supplemental Retirement System June 30, 2015

Introductory Section iii

Annually, the budget for the System must be approved by the Board. The budget is also included in the City of Tucson annual budget which is recommended by the City Manager for adoption by the Mayor and Council. Provisions of the Tucson City Code require unanimous approval of all System expenses by the Board. Quarterly, the Board reviews the financial report and expenses listing and ratifies all expenses. Contributions to the System are based on principles of level-cost financing with current service financed as a level percent of payroll on a current basis and prior service amortized as a level percent of payroll over a fixed period of twenty years beginning July 1, 2014.

Funding Status Analysis of the funding progress for TSRS measures the net assets available for benefits against the actuarial accrued liability, in order to arrive at the System’s percent funded ratio. As of June 30, 2015, the System’s funded ratio increased from 64.8% to a 69.2% funded level on an actuarial basis. On a market basis, the System’s funded ratio slightly decreased from 72.7% to 72.4%. The actuarial accrued liability increased from $1,012,393,337 to $1,021,377,564, an increase of .01%. The actuarial value of assets allocated to funding and available for benefits increased by 7.74%, from $655,997,802 to $706,773,630. The unfunded actuarial accrued liability decreased by $41,791,601, or 11.7% in the current year. The System experienced an asset gain of $50.8 million during fiscal year 2015. Although the market value of assets returned less than 7.25% during the year, there were deferred gains in the actuarial value of assets as of June 30, 2014 which were partially recognized in the June 30, 2015 valuation, creating the observed gain. The changes in accrued actuarial liability are primarily due to salary increases less than expected.

Investment Activities

Net investment income amounted to $30,802,435. The net investment income or loss is comprised of bond interest, dividend income, real estate income, security lending income, investment expenses and realized and unrealized gains and losses on securities. The rate of return for the total fund for the year was 4.6% (gross of fees). For the last five and ten years, the System had annualized returns of 12.6% and 7.1%, respectively.

TSRS asset allocation targets are 46% U.S. equities, 15% foreign equities, 8% real estate, 26% fixed income and 5% infrastructure. These percentages reflect the current diversification posture as of June 30, 2015 and represent the Board’s prudent judgment in the pursuit of maximum returns at acceptable levels of risk.

In accordance with current investment policy, the System’s asset classes were rebalanced throughout the fiscal year. Due to ongoing liquidity requirements needed to pay retiree pensions, $28.4 million was moved out of various asset classes, in monthly increments, to the City’s investment pool account. This amount was utilized throughout the fiscal year to make up the shortfall between pension contributions and distributions. This movement of funds had a “self-balancing” effect between equities, fixed income, real estate and infrastructure which helped to keep those asset classes within their current target allocation percentage ranges.

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Tucson Supplemental Retirement System June 30, 2015

Introductory Section iv

Major Initiatives Every five years the System’s investment consultant and actuary complete an asset/liability and experience study. These were both completed during the fiscal year ended June 30, 2014, based on data from the June 30, 2013 plan year end. As a result of these studies, a significant reallocation of assets were recommended by the investment consultant and approved in principle by the Board. It is expected that a new investment policy will be approved and implemented during the plan year ended June 30, 2016, which will reduce target allocations to U.S. equities by 12% and increase target allocations to international equities, fixed income and real estate by 10%, 1% and 1%, respectively. In 2015, the Board recommended to Mayor and Council the inclusion of the administrative expenses in the contribution rate and recommended that the employer rate remain at a minimum of 27.50% until the System reaches full funding. These recommendations will be reviewed by Mayor and Council in January 2016, during the fiscal year 2017 budget development process. Similar to previous years, tight budgets continue to be the norm, restricting the number of employees hired since 2008, thereby reducing the number of employees hired to replace those from attrition. It is anticipated that the City will explore retirement incentives during fiscal year 2016, as part of the budget development process for fiscal year 2017.

Professional Services

The Retirement Board retains money managers and other professionals to prudently discharge its fiduciary responsibility for the proper administration of the System. Opinions of the independent auditors and the actuary are included in this report. The professionals retained by the Board are listed on page vii of this report.

Acknowledgments

This report is intended to provide information as a means for making management decisions, complying with statutory provisions, and demonstrating responsible stewardship for assets of the System. The preparation of this report reflects the combined efforts of TSRS staff, the City of Tucson Finance Department, and others that have worked diligently to assure the successful operation of TSRS. Special words of appreciation are due to: Silvia Navarro, Treasury Administrator, Allan Bentkowski, CPA, Finance Manager, Art Cuaron, Finance Manager, Dennis Woodrich, Lead Pension Analyst, Bob Szelewski, Management Analyst, Dawn Davis, Administrative Assistant, Shane Oman, Accounting Administrator, Aaron Williams, Finance Manager and David Roels, Principal Accountant. The direction and support extended by the Board of Trustees is also greatly appreciated. The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the Tucson Supplemental Retirement System for its comprehensive annual financial report for the fiscal year ended June 30, 2014. This was the 19th consecutive year that the Tucson Supplemental Retirement System has achieved this prestigious award. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements.

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Tucson Supplemental Retirement System June 30, 2015

Introductory Section v

A Certificate of Achievement is valid for a period of one year only. We believe that our current comprehensive annual financial report continues to meet the Certificate of Achievement Program’s requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. Respectfully submitted, Silvia Amparano, CPA Finance Director Tucson Supplemental Retirement System

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Introductory Section vi

Finance Director

Deputy Director

Treasury Administrator

Finance Manager Plan Manager

Administrative Assistant

Lead Pension Analyst

Management Analyst

Administrative Assistant

Board of Trustees

Organization Chart

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Introductory Section vii

Administrative Organization

BOARD OF TRUSTEES Robert Fleming Chairman Kevin Larson City Manager’s Appointee Silvia Amparano Finance Director Curry Hale Interim Human Resources Director Jorge Hernández Employee Representative Michael Coffey Employee Representative John O’Hare Retiree Representative FINANCE DEPARTMENT Karen Tenace, Deputy Director TREASURY DIVISION STAFF Silvia Navarro Treasury Administrator Allan Bentkowski, CPA Finance Manager Deborah Gagnier-Campbell Administrative Assistant RETIREMENT STAFF Michael A. Hermanson, CPA Plan Administrator Dennis Woodrich Lead Pension Analyst Bob Szelewski Management Analyst Dawn Davis Administrative Assistant ACCOUNTING David Roels Principal Accountant LEGAL David Deibel Principal Assistant City Attorney

External Counsel Yoder & Langford, P.C. Phoenix, AZ ACTUARY Gabriel, Roeder, Smith & Company Denver, CO AUDITOR CliftonLarsonAllen LLP Tucson, AZ INVESTMENT MANAGERS Aberdeen Asset Management Philadelphia, PA Alliance Capital Management Corporation New York, NY BlackRock Institutional Trust Company, N.A. San Francisco, CA Causeway Capital Management Los Angeles, CA Pyramis Global Advisors Smithfield, RI JP Morgan Asset Management San Francisco, CA LaSalle Investment Management Chicago, IL Pacific Investment Management Company Newport Beach, CA Champlain Investment Partners Burlington, VT Macquarie Capital (USA), Inc. New York, NY SteelRiver Infrastructure New York, NY T. Rowe Price Associates Baltimore, MD INVESTMENT CONSULTANT Callan Associates, Inc. San Francisco, CA CUSTODIAN BANK BNY Mellon – New York, NY

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FINANCIAL SECTION

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Tucson Supplemental Retirement System June 30, 2015

Financial Section 1

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Tucson Supplemental Retirement System June 30, 2015

Financial Section 2

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Financial Section 3

MANAGEMENT’S DISCUSSION AND ANALYSIS We are pleased to provide this overview and analysis of the financial activities of the Tucson Supplemental Retirement System (TSRS) for the plan year ended June 30, 2015. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our Letter of Transmittal, which begins on page ii of this report. Financial Highlights • The net position of TSRS as of the close of the plan year ended June 30, 2015 was

$739,793,547 (net position held in Trust for Pension Benefits). The net position is available to meet TSRS’s ongoing obligations to plan participants and their beneficiaries.

• TSRS’s increase in total net position held in trust for pension benefits was $4,057,047, a

slight increase of .6% over the prior year. • TSRS’s funding objective is to establish and receive contributions, which will remain

approximately level from year to year and thereby minimize inter-generational cost transfers. As of June 30, 2015, the date of our last actuarial valuation, the funded ratio for TSRS was 69.2% on an actuarial basis, 72.4% using the market value basis.

• Revenues (Additions to Plan Net Position) for the year were $72,319,803, which includes

member and employer contributions plus transfers from other systems and contributions from other sources totaling $41,538,151, investment earnings income and securities lending income and expense of $12,427,745 and a net gain in fair value of investments of $22,467,139 reduced by investment expenses of $4,092,449.

• Expenses (Deductions from Plan Net Position) increased from $66,737,752 in the prior

year to $68,262,756 or approximately 2.2%. The net increase in deductions resulted from an increase in pension benefits paid of $1,739,384, offset by a net decrease in refunds and transfers of $129,046 and a decrease in administrative expenses of $85,334.

Overview of the Financial Statements The following discussion and analysis is intended to serve as an introduction to TSRS’s financial statements, which are comprised of these components: 1. Statement of Fiduciary Net Position 2. Statement of Changes in Fiduciary Net Position 3. Notes to the Financial Statements Please note that this report also contains other supplementary information in addition to the basic financial statements themselves, including details of the system’s investments, actuarial analysis, and various statistical information found in sections under those names. The Statement of Fiduciary Net Position is a snapshot of account balances at year-end. It indicates the assets available for future payments to retirees and any current liabilities that are owed at this time.

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Tucson Supplemental Retirement System June 30, 2015

Financial Section 4

The Statement of Changes in Fiduciary Net Position, on the other hand, provides a view of current year additions to and deductions from the plan. Both statements comply with applicable Governmental Accounting Standards Board (GASB) Statements. These pronouncements require certain disclosures and require state and local governments to report using the full accrual method of accounting. TSRS complies with all material requirements of these pronouncements. The Statement of Fiduciary Net Position and the Statement of Changes in Fiduciary Net Position report information about TSRS’s activities. These statements include all assets, deferred outflows, liabilities and deferred inflows, using the full accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year’s revenues and expenses were taken into account regardless of when cash is received or paid. All investment gains and losses are shown at trade date, not settlement date. In addition, both realized and unrealized gains and losses are shown on investments, and all capital assets (fixed assets) are depreciated over their useful lives. These two statements report TSRS’s net position held in trust for pension benefits (net position) – the difference between assets and liabilities – measures the system’s financial position. Over time, increases and decreases in TSRS’s net position is one indicator of whether its financial condition is improving or deteriorating. (See TSRS’s financial statements on pages 8 and 9 of this report). Notes to the Financial Statements provide additional information that is essential to a full understanding of the data provided in the financial statements. (See Notes to Financial Statements on pages 10-24 of this report). The Required Supplementary Information that follows immediately after the notes to financial statements provides new information and schedules due to the GASB 67 implementation in fiscal year 2014. These schedules will start with one year as of June 30, 2014, but eventually will need to build up to ten years of information. Financial Analysis As previously noted, net position may serve over time as a useful indication of TSRS’s financial position (see table on page 5). The total assets of TSRS exceeded its liabilities at the close of the plan year ended June 30, 2015 with $739,793,547 in net position held in trust for payment of ongoing obligations to plan participants and their beneficiaries.

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Tucson Supplemental Retirement System June 30, 2015

Financial Section 5

Net Position of the Plan

Assets 6/30/15 6/30/14 % changeCash, Cash Equivalents and Receivables 6,759,380 6,040,327 11.9%Investments 735,578,360 731,839,755 0.5%Securities Lending Cash Collateral 19,876,248 13,985,775 42.1%Total Assets 762,213,988$ 751,865,857$ 1.4%

LiabilitiesAccounts Payable and Other Payables 400,538 518,017 -22.7%Due to Securities Lending Borrowers 19,876,248 13,985,775 42.1%Due to Brokers 2,143,655 1,625,565 31.9%Total Liabilities 22,420,441$ 16,129,357$ 39.0%

Total Net Position 739,793,547$ 735,736,500$ 0.6% At June 30, 2015, the Total Net Position of Assets held in the Trust of $739,793,547 was available for payment of pension benefits, as shown in the Statement of Plan Position on page 8. This amount represents an increase of .6% from June 30, 2014. Additions to Plan Net Position

6/30/15 6/30/14 % changeEmployer Contributions 33,985,523 34,189,288 -0.6%Employee Contributions 6,512,180 6,636,833 -1.9%Purchase of Service Credit 1,019,665 701,711 45.3%Net gain (loss) in Fair Value of Investments 22,467,139 111,063,362 -79.8%Investment and securities lending income (net) 8,335,296 8,836,868 -5.7%Total Additions 72,319,803$ 161,428,062$ -55.2%

Additions to Net Assets - TSRS

Employer contributions decreased by $203,765; or .60%, and employee contributions decreased by $124,653, or 1.9%. A total of $1,019,665 was received from employees purchasing service credits, which was $317,954 more than the prior fiscal year or 45.3% higher. There were no transfers into the Plan from other systems during this fiscal year. Net gain in Fair Value of Investments decreased by $88,596,223, or 79.8% over the prior year; and income from investment and securities lending decreased for the current year by $501,572 or 5.7%, resulting primarily from lower dividends and interest income received during the fiscal year. Deductions from Plan Net Position

The principal purpose for which the System was created was to provide supplemental retirement annuities, survivor benefits, and total and permanent disability benefits to qualified members and their beneficiaries. The costs of such programs include recurring benefit payments as required by the plan design, refunds of contributions to terminated employees, the cost of administering the System and expenses incurred in the investment of the Systems assets.

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Tucson Supplemental Retirement System June 30, 2015

Financial Section 6

Total deductions for fiscal year 2015 were $68,262,756 representing an increase of 2.3% from fiscal year 2014 expenses. The largest contributors to the increase in deductions for this year were attributed to new retirements, which increased the amount of retirement benefit payments paid by $1,739,384. Additional deductions were transfers to other systems in the amount of $141,708 and member contribution refunds in the amount of $2,254,185. Deductions from Plan Net Position

06/30/15 06/30/14 % changeRetirement Benefits 65,216,458 63,477,074 2.7%Refund of Contributions 2,254,185 2,084,024 8.2%Transfers to Other Retirement Plans 141,708 440,915 -67.9%Administrative Expenses 650,405 735,739 -11.6%Total Deductions 68,262,756$ 66,737,752$ 2.3%

Net Increase/(Decrease) in Plan Position 4,057,047$ 94,690,310$ -95.7%

Reserves Within net position, the System internally places an amount into a separate Reserve for Employee Contributions for all amounts contributed by members. Deductions are made from this account when the member retires, transfers balances to other retirement systems, or when a member terminates employment and requests a refund. As of the plan year ended June 30, 2015, the balance in this reserve account increased by $1,230,044 to $143,648,835. Upon retirement, the system places an amount in Reserves for Retirement Benefits equivalent to the present value of the actuarial benefit selected by the member. When the present value is determined, amounts are added to this reserve from amounts in the Reserve for Employee Contributions and from the Unreserved Net Position balance to fully fund the expected liability. As a result of the change in market value of the system assets, the reserve increased for the plan year ended June 30, 2015 by $13,480,373 to $661,292,061. The impact of gains or losses recognized during the plan year ended June 30, 2015 affects the amount remaining in the Unreserved Net Position. Employer funding is added to the Unreserved Net Position balance. At retirement, amounts needed to fully fund retirement benefits are transferred from the Unreserved Net Position to the Reserves for Retirement Benefits. As a result of the change in market values of the system’s assets, the Unreserved Net Position increased by $4,057,047 to a negative ending balance of $65,147,349. TSRS’s Fiduciary Responsibilities TSRS’s Board of Trustees and management staff are fiduciaries of the pension trust fund. Under the City of Tucson Code the assets can only be used for the exclusive benefit of plan participants and their beneficiaries.

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Tucson Supplemental Retirement System June 30, 2015

Financial Section 7

Requests for Information This financial report is designed to provide the Retirement Board of Trustees, our membership, taxpayers, investment managers and other interested parties with a general overview of TSRS’s finances and to account for the money it receives. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to:

Tucson Supplemental Retirement System Attention: TSRS Plan Administrator City Hall, 5th floor – Finance Administration Office

255 West Alameda Street Tucson, Arizona 85701 (520) 791-4598

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Tucson Supplemental Retirement System June 30, 2015

Financial Section 8

Tucson Supplemental Retirement System

Statement of Fiduciary Net Position June 30, 2015

See Accompanying Notes to Financial Statements

Pension TrustASSETSCash and Cash Equivalents 2,567,105$ Employer Contributions Receivable 1,281,772 Employee Contributions Receivable 255,796 Interest & Dividends Receivable 1,707,713 Due from Brokers 946,994 Short Term Investments 8,958,665 Securities Lending Cash Collateral 19,876,248 U.S. Treasuries, Agencies & Other Governmental Bonds 62,887,490 Bonds and Preferred Stock 55,247,455 U.S. Equity 372,249,062 International Bonds & Other Fixed Income Instruments 39,885,129 International Equity & Comingled Equity Funds 97,369,073 Real Estate & Comingled Real Estate Funds 58,761,226 Infrastructure Investment Funds 40,220,260 Total assets 762,213,988

LIABILITIESAccounts Payable 384,773 Accrued Payroll Liabilities 15,459 Due to Securities Borrowers 19,876,248 Due to Brokers 2,143,655 Refundable Deposits 306 Total liabilities 22,420,441

NET POSITIONHeld in Trust for Pension Benefits 739,793,547$

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Tucson Supplemental Retirement System June 30, 2015

Financial Section 9

Tucson Supplemental Retirement System Statement of Changes in Fiduciary Net Position

Year Ended June 30, 2015

See Accompanying Notes to Financial Statements

Pension TrustAdditions: Employer Contributions 33,985,523$ Employee Contributions 7,531,845 Net Increase in Fair Value of Investment 22,467,139 Interest, Dividends and Other Income 12,309,498 Securities Lending Income 163,140 Less: Investment Activity Expense (4,092,449) Less: Securities Lending Expense (65,676) Miscellaneous Additions 20,783 Total additions 72,319,803

Deductions: Payments to Participants 65,216,458 Refunds and Transfers to Other Plans 2,395,893 Administrative Expense 650,405 Total deductions 68,262,756

Changes in net position 4,057,047

Net position, beginning of year 735,736,500

Net position, end of year 739,793,547$

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Tucson Supplemental Retirement System June 30, 2015

Financial Section 10

Tucson Supplemental Retirement System Notes to Financial Statements Year Ended June 30, 2015

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DISCUSSION OF PLAN

NET POSITION

A. Reporting Entity - Due to the extent of the System’s financial and operational relationship with the City of Tucson, the System is considered a component unit of the City’s financial reporting entity and is included in its Comprehensive Annual Financial Report as a pension trust fund.

B. Basis of Accounting - The System’s financial statements are prepared using the accrual basis of accounting and economic resources measurement focus. Employee and employer contributions are recognized when due, pursuant to formal commitments. Benefits and refunds are recognized when due and payable in accordance with the plan provisions.

C. Investments - Investments are reported at fair value. Securities traded on a national or international exchange are valued at the last reported sales price at current exchange rates. The fair value of real estate investments is based on independent appraisals. Investments that do not have an established market are reported at estimated fair value, which is determined by the System custodian in consultation with the System’s investment managers.

The cost of common stock sold is determined on the average cost method. Realized and unrealized gains or losses are reflected in revenues.

D. Deposits - In accordance with the City Charter and state statutes, the System is authorized to deposit money in certificates of deposit and interest-bearing accounts provided that deposits in excess of the insured amount are collateralized. State statutes require collateral pledged for deposits to be held in the System’s name by a bank other than the pledging bank or by the pledging bank’s trust department.

E. Capital Assets – Capital assets of the System currently include moveable equipment items and the capitalized cost of pension administration software, stated at historical cost net of accumulated depreciation. The straight-line method of depreciation for capitalized equipment and software is used over an estimated useful life of 6 years. The capitalization threshold is $5,000. The capital assets were fully depreciated as of June 30, 2015.

F. Benefit Changes – The TSRS Board of Trustees shall determine, pursuant to its formal policy and in its discretion whether the System shall fund an annual supplemental post-retirement benefit payment to retired members and beneficiaries.

G. Administrative Costs - All costs of administering the plan are financed by the employer and member contributions made, based upon recommended contribution rates in effect for the year, applied on active member covered payroll.

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Tucson Supplemental Retirement System June 30, 2015

Financial Section 11

H. Net Pension Liability – The components of the net pension liability as of June 30, 2015 are as follows:

Total Pension Liability $ 1,021,377,564 Plan’s Fiduciary Net Position 739,793,547 Net Pension Liability 281,584,017

• Plan Fiduciary Net Position as a Percentage of Total Pension Liability 72.43%

• Covered Employee Payroll $ 123,414,560 • Net Pension Liability as a Percentage of

Covered Employee Payroll 228.16% I. Tax Status of the Plan – The System applied for an IRS determination letter in

November 2008, and received a favorable determination (qualified status) from the IRS July 19, 2012.

2. DESCRIPTION OF THE PLAN

A. Authorization, Purpose, and Administration of the System - The Tucson Supplemental Retirement System (the “System” or “TSRS”) is a single-employer defined benefit plan for City of Tucson (“City”) employees. It was established in the City Charter to provide its members with a supplement to the retirement and disability benefits of the social security system. The System is governed by a seven member Board of Trustees: a chairman who is appointed by the Mayor and Council, the City’s directors of human resources and of finance, two members elected by the membership of the System, a retired member elected by the System’s retirees, and one member appointed by the City Manager. Benefit provisions and changes in benefits or funding are recommended by the Board of Trustees and must be approved by Mayor and Council. B. Plan Membership - The System covers substantially all City of Tucson, Arizona, employees, except for appointed officials and staff who may elect not to join, commissioned police and fire personnel, and elected officials, who are covered under other plans. Employees participate in the System immediately upon beginning employment with the City. Employee membership data as of June 30, 2015 is as follows:

Membership – number of: Retirees and Beneficiaries 2,809 Inactive, Non-retired Members (44 non vested) 328

Active plan participants 2,665 Total Membership 5,802

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Tucson Supplemental Retirement System June 30, 2015

Financial Section 12

C. Plan Benefits

1. Retirement Benefits

• Tier I benefit plan: Any employee hired prior to July 1, 2011, who has attained the earlier of age 62, or a combination of the employee’s age and years of creditable service equaling the sum of 80, is entitled to receive monthly retirement benefits calculated at 2.25% of average final monthly compensation multiplied by the number of years of creditable service. Employees hired after July 1, 2009 receive the same benefit, but are required to have a minimum of five years accrued service. Average final monthly compensation is defined as the highest compensation of 36 consecutive months during the 120 months immediately preceding retirement. Accrued unused sick leave and vacation leave at the final salary is included in the member’s service period and is substituted for an equal number of hours at the beginning of the 36 month period for determining the average final salary calculation.

• Tier II benefit plan: Any employee hired after June 30, 2011, who has attained the minimum retirement age of age 60, and who also has a combination of employee age and years of service equaling the sum of 85, is entitled to receive monthly retirement benefits calculated at 2.00% of average final monthly compensation multiplied by the number of years of creditable service. Average final monthly compensation is defined as the highest compensation of 60 consecutive months during the 120 months immediately preceding retirement. Accrued unused sick leave and vacation leave at the final salary is not included for member service credits or as a substitution for an equal number of hours at the beginning of the 60 month period final average salary calculation.

An employee who retires after attaining age 55 with 20 or more years of creditable service under Tier I; or after attaining age 60 with 20 or more years of credited service under Tier II, is entitled to early retirement benefits reduced to the actuarial equivalent of the amount to which the employee would have been entitled upon attaining normal retirement.

An employee is always fully vested in his/her individual contributions. Upon termination of employment for reasons other than retirement, employees having five or more years of creditable service (terminated vested participants) may leave their contributions in the System as a deferred retirement, and begin drawing a retirement allowance when they reach either their normal or early retirement eligibility date.

2. Disability Benefits - Employees with ten or more years of accrued service, who are not yet eligible to retire and who have a total and permanent disability may apply for disability retirement.

3. Death Benefits - The beneficiary of an employee who pre-selected a retirement option and died while eligible to retire, shall receive a benefit based upon the selected option if the member has made such an election by June 30, 2009.

The spousal beneficiary of an employee who died while eligible to receive benefits but who had not pre-selected a benefit option by June 30, 2009, may choose to receive a benefit equal to a 100% joint and survivor annuity based on the member’s years of credited service and average final monthly compensation at the time of the member’s death, or may elect to receive a lump sum payment of twice the members account balance plus interest, measured on the date of death.

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Tucson Supplemental Retirement System June 30, 2015

Financial Section 13

The named beneficiary of an employee who is other than the spouse of the employee who died while eligible to receive benefits but who had not pre-selected a benefit option by June 30, 2009, may choose to receive a benefit equal to a 15 year term certain benefit to the named beneficiary, or the beneficiary may elect to receive a lump sum payment of twice the members account balance plus interest, measured on the date of death.

Multiple designated beneficiaries of an employee who died while eligible to receive benefits but who had not pre-selected a benefit option by June 30, 2009, receive a lump sum payment of twice the member’s account balance plus interest, measured on the date of death.

The beneficiary of an employee who was not eligible for any retirement benefits, but had more than five years of creditable service, may receive a lump sum payment of twice the member account balance plus interest, measured on the date of death.

3. CONTRIBUTIONS AND RESERVES

A. Funding Requirements

1. Employee Contributions - Employee contributions are 5% of active member covered payroll for employees hired prior to July 1, 2006. Employees hired after June 30, 2006 are contributing an amount equal to 40% of the actuarially required contribution rate determined annually by the system Actuary. For the fiscal year ended June 30, 2015, the employee blended contribution rate was 5.17%. All member contributions are made by payroll deductions applied to regular pay, based on the approved contribution rates established by the system Actuary, applied as a percent of payroll.

Effective July 1, 2013, the funding policy changed for employees hired after June 30, 2006; requiring a contribution rate that is equal to a range of between 50% and 100% of the normal cost of the members benefit Tier. For Tier I members (hired between July 1, 2006 and June 30, 2011), the contribution rate for fiscal year 2015 was 6.75%. For Tier II members (hired after July 1, 2011), the contribution rate for fiscal year 2015 was 5.25%. A reserve is established for contributions and earnings allocations, less amounts transferred to the reserve for retirement benefits which includes retirement and disability and amounts reserved for terminated employees. If an employee leaves covered employment before attaining five years service credit, the accumulated contributions plus interest are refunded to the employee or his designated beneficiary. There are no long-term contracts for employee contributions to the plan, and all contributions are made on a bi-weekly basis.

2. Employer Contributions – Employer contributions are based on the annual required contribution rate determined by the Actuary, and are equal to the difference between the recommended total contribution rate and the employee rates, based on a level percentage of payroll method. The contribution rate is determined by the actuary at a level necessary to finance employee participation in the System and to fund the costs of administering the System. The annual rate determined by the Actuary is recommended to the Board of Trustees and considered for approval and adoption by Mayor and Council. There are no long-term contracts for employer contributions to the plan, and all contributions are made on a bi-weekly basis.

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Tucson Supplemental Retirement System June 30, 2015

Financial Section 14

B. Net Position

Two general types of net position reserves are maintained within the System. The Reserve for Employee Contributions contains the employee contributions for all contributing members of the System, plus allocated interest earnings. At the time an employee retires or defers retirement, the actuarial value of the individual’s retirement benefits is transferred to the Reserve for Retirement Benefits, which is decreased by payments to retirees and increased by interest earnings. The reserves are fully funded.

Earnings of the System are allocated semi-annually (at June 30 and December 31) to the reserves which comprise net position. For the year ended June 30, 2015, allocations were based on rates of return of 6.00% per annum. Any unallocated earnings remain in unreserved net position.

The net position at June 30, 2015, consisted of the following components:

4. INVESTMENTS

The System is governed by a Board of Trustees. The Board of Trustees is required by City Code, in making investment decisions, to exercise the judgment and care under the circumstances then prevailing which persons of ordinary prudence, discretion and intelligence exercise in management of their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income there from, as well as the probable safety of the capital. Investments of the System are held and managed by investment professionals separately from those of other City funds. Quoted market prices have been used to value investments as of June 30, 2015.

For those investments that do not have established market exchanges, the fair value is estimated as objectively as possible by third party appraisals. Real Estate and Infrastructure investment managers utilize third party appraisals to determine fair value of assets under investment. Infrastructure investments pertain to forms of “real” property used for general public purposes that typically involve partnerships between governmental and private entities. Examples of infrastructure investments are toll roads, bridges, pipelines, airports, shipping ports, etc. The System currently participates in two pooled infrastructure funds as well as three real estate funds.

The System’s investments at June 30, 2015 are listed below. These investments are either held by the System or its agent in the System’s name and are insured, registered or collateralized. A portion of these investments is subject to credit risk (including custodial credit risk and concentrations of credit risk), interest rate risk and/or foreign currency risk. The Government Accounting Standards Board (GASB) Statement 40 requires the System to disclose such risks which are all discussed in the sections that follow.

Reserved for employee contributions $ 143,648,835Reserved for retirement benefits 661,292,061Unreserved net position (deficit) (65,147,349)

Net Position $ 739,793,547

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Tucson Supplemental Retirement System June 30, 2015

Financial Section 15

All System investments are reflected in the following schedule with the exception of amounts held in the City’s investment pool account and certain deposits of $111,680. The City maintains an investment pool account for City funds. Bi-weekly contributions for the Tucson Supplemental Retirement System are held in the City’s investment pool account and are used to pay recurring expenditures. The $2,567,105 cash balance in the investment pool account, as well as, current deposits to the City’s investment pool account are invested in money market funds consisting of U.S. Treasuries and Agencies and separately held issues of federal agency and U.S. corporate bonds with ratings no lower than A2 as reported by Moody’s.

Investment Policy – TSRS Investment Policy and asset class allocations are established by the TSRS Board of Trustees and may be amended by majority vote of its members. The TSRS Board establishes investment policies to pursue an investment strategy that reduces risk through prudent diversification of the portfolio across a broad selection of distinct asset classes. Long-term Expected Return on Plan Assets - Expected rates of return are determined using a building-block method in which best-estimated ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return were adopted by the Plan’s trustees after considering input from the Plan’s investment consultant and actuary. For each major asset class that is included in the Plan’s adopted target asset allocation as of June 30, 2015, these best estimates are summarized in the table shown on the following page:

Investments Fair ValueU.S. Issues not on Securities Loan: U.S. Treasuries, Agencies & Other Governmental Bonds 62,587,503$ Corporate Bonds & Other Fixed Income Instruments 49,826,076 U.S. Equity & Commingled Equity Funds 359,633,881 Non-U.S. Issues not on Securities Loan: International Bonds & Other Fixed Income Instruments 39,885,129 International Equity & Commingled Equity Funds 96,492,560 Subtotal 608,425,149

Investments Held by Broker-Dealers Under Securities Loans with Cash Collateral: U.S. Treasuries, Agencies & Other Governmental Bonds 299,987 U.S. Corporate Bonds & Other Fixed Income Instruments 5,421,379 U.S. Equity 12,615,181 International Equity 876,513 Subtotal 19,213,060

Securities Lending Short-Term Collateral Investment Pool 19,876,248 Money Market Funds/Short-Term Investments 8,846,986 Real Estate & Commingled Real Estate Funds 58,761,226 Infrastructure Investment Funds 40,220,260 Subtotal 127,704,720 Total Deposits and Investments 755,342,929$

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Tucson Supplemental Retirement System June 30, 2015

Financial Section 16

Long term expected return on Plan Assets:

Asset Class

Target Allocation

Expected Arithmetic

Returns Large Cap U.S. Equities 36% 8.90% Small/Mid Cap U.S. Equities 10% 10.15% International Equities 15% 9.25% Fixed Income 26% 3.05% Real Estate 8% 7.35% Infrastructure 5% 8.90% Total

100%

Weighted Average Arithmetic Returns, in proportion to asset allocation

7.43%

Concentrations – TSRS did not hold investments (other than those explicitly guaranteed by the U.S. Government) in any one organization that represents 5 percent or more of the Plan’s fiduciary net position at June 30, 2015.

Rate of Return – For the year ended June 30, 2015, the annual money-weighted rate of return on the Plan’s investments, net of pension plan investment expenses, was 4.17%. The money-weighted rate of return expresses investment performance, net of investment expense, adjusted for the changing amounts actually invested. Sensitivity of Net Pension Liability to the Single Discount Rate Assumption Below is a table providing the sensitivity of the net pension liability to changes in the discount rate. In particular, the table presents the plan’s net pension liability, if it were calculated using a single discount rate that is 1 percentage-point lower or 1 percentage-point higher than the single discount rate:

Current Single Dis count

1% Decrease Rate Assumption 1% Increase 6.25% 7.25% 8.25%

$ 387,785,524 $ 281,584,017 $ 192,147,703

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Tucson Supplemental Retirement System June 30, 2015

Financial Section 17

Credit Risk – As defined by GASB Statement 40, credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. Associated with credit risk is concentration of credit risk and custodial credit risk. Concentration of credit risk is the risk of loss attributed to the magnitude of a government’s investment in a single issuer. Custodial credit risk for deposits and investments is the risk that, in the event of the failure of a depository financial institution or the counterparty to a transaction, a government will not be able to recover deposits or will not be able to recover collateral securities that are in the possession of an outside party. The System presently maintains two externally managed fixed income (bond) accounts which are exposed to some form of credit risk. The assets in the first account are actively managed while the assets in the second account are invested in a commingled bond index fund (passively managed). The TSRS Board has given the actively managed account manager discretion to invest in a broad array of public and private asset classes, instruments and investment vehicles in order to meet or exceed the agreed upon investment return custom benchmark. However, the following specific investment policy guidelines pertain to this manager:

The maximum position in a single issuer (excluding obligations of U.S. Government and its Agencies) should not exceed 5% of the portfolio’s assets at current market value

The portfolio should maintain an average quality of at least “BB+” Money market instruments must be rated in one of the two highest categories by a

nationally recognized rating agency The minimum rating of individual issues should be CCC (based on market value) as

rated by Moody’s, Standard & Poor’s or Fitch

The passive fund is expected to replicate, as close as possible, the characteristics, quality and performance of its underlying index, the BC Aggregate Bond Index.

The System currently does not have a policy regarding custodial credit risk for deposits or investments as defined in the Credit Risk section above.

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Tucson Supplemental Retirement System June 30, 2015

Financial Section 18

The System had the following credit risk structure as of June 30, 2015:

Footnotes (1) Per Moody’s Investors Service, Inc. (Moody’s) (2) A negative value in any of the instruments noted above is the result of netting long and short positions against each other. This strategy is utilized as a means to mitigate interest rate risk from holding long positions in mortgages and / or corporate bonds.

Investment Type HoldingsAverage Credit

Rating (1) Fair Value Percent of

TotalCash and Cash Equivalents:

Cash & Short Term Investment Funds 5 Aaa 8,452,241$

Subtotal 5 8,452,241 5.08%

U.S. Agency & Other Governmental Obligations:

Municipal Bonds 3 B3 1,438,453

BlackRock U.S. Debt Fund 1 Aa2 61,449,036

Subtotal 4 62,887,489 37.78%

U.S. Corporate Bonds & Other Fixed Income Instruments:

Asset Backed Securities 3 Baa2 433,450

Collateralized Mortgage Obligations 5 Baa2 713,539

Fixed Income Swaps & Options 64 Baa2 (1,001,520) (2) Futures 2 Aaa (101,408) (2) Banking & Finance 14 Ba2 5,046,023

Health Care 2 Ba2 1,104,750

Oil, Gas & Chemicals 15 Ba2 2,562,601

Communications 3 Baa2 809,664 Utilities 9 BBB+ 3,476,253

Other Corporate Issues 36 BBB+ 13,340,637

PIMCO Private Mortgage Sector Fund 9 Baa2 28,863,466 Subtotal 162 55,247,455 33.19%

International Bonds & Other Fixed Income Instruments: 180 Ba1 39,885,129 23.95%

TOTAL 351 166,472,314$ 100%

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Tucson Supplemental Retirement System June 30, 2015

Financial Section 19

Interest Rate Risk – As defined by the Government Accounting Standards Board (GASB) in Statement 40, interest rate risk is the risk that changes in interest rates will adversely affect the fair value of investments. For fixed income securities, there is an inverse relationship between the change in interest rates and their fair value. For example, in a rising interest rate environment the value of fixed income securities will tend to fall by varying degrees depending on the length of their maturities. In general, the value of fixed income securities with a longer duration will tend to decrease more than shorter duration securities in a rising interest rate environment.

The System’s investment policy regarding interest rate risk for the actively managed fixed income account, is to limit duration to within 30% of the custom benchmark which is defined as 25% BC Mortgage Index, 25% BC Credit Index, 25% BC High Yield Index and 25% JPM EMBI Global Index. The passive fund should match, as close as possible, the maturity structure and duration of the BC Aggregate Bond Index.

The System had the following maturity structure as of June 30, 2015:

Investment Type Less Than 1 1 - 5 6 - 10 More Than 10 Fair ValueCash & Short Term Investment Fund 8,452,241$ -$ -$ -$ 8,452,241$

U.S. Agency & Other Governmental Obligations - - - 1,438,453 1,438,453

BlackRock U.S. Debt Fund - - 61,449,036 - 61,449,036

U.S. Corporate & Other Fixed Income Instruments 1,587,259 37,955,112 6,552,303 9,152,781 55,247,455

International Bonds & Other Fixed Income Instruments 142,091 16,414,650 11,183,394 12,144,994 39,885,129

TOTAL 10,181,591$ 54,369,762$ 79,184,733$ 22,736,228$ 166,472,314$

Effective Duration:

Active Account 4.9 years

Passive Account 5.23 years

Note: The information indicated has been presented using the specific identification method

Maturity StructureInvestment Maturities (in Years)

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Tucson Supplemental Retirement System June 30, 2015

Financial Section 20

Foreign Currency Risk – As defined by the Governmental Accounting Standards Board (GASB) in Statement 40, foreign currency risk is the risk that changes in exchange rates will adversely affect the fair value of an investment or a deposit.

The TSRS Board has given the System’s international equity managers discretion to invest in a broad array of common and preferred stocks, convertibles and warrants of companies headquartered outside of the United States in order to meet or exceed their agreed upon investment return benchmarks. However, the following specific investment policy guidelines pertain to these managers:

Investments in any single country market should not exceed more than 4 times the weight of the country in the benchmark index or 50% of portfolio assets, whichever is lower

If a country has a greater than 50% weight in the index, the maximum exposure to that country in the portfolio may be as high as its weight in the index

No more than 35% of each manager’s portfolio should be invested in “emerging markets” (i.e., markets that are not included in the Morgan Stanley Capital International Europe, Australia and Far East Index)

Managers are permitted to enter into hedging strategies, including cross-currency hedges, using forward currency exchange contracts and currency options

Derivatives should not be used for the purpose of speculation or for leveraging the

portfolio

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Tucson Supplemental Retirement System June 30, 2015

Financial Section 21

Foreign Currency Risk (continued from previous page)

The TSRS fund had the following foreign currency risk exposure as of June 30, 2015:

Currency Type

Cash & Cash

Equivalents (1)

Fixed Income (1) Equity Real Estate

Infra-structure

Foreign Exchange Contracts

(2) Fair ValuePercent of

TotalAustralian Dollar (15,744)$ -$ -$ -$ -$ -$ $ (15,744) -0.002%

Brazil Real 15,949 262,489 (285,126) (6,688) -0.001%

Canadian Dollar 410 - 1,577,768 - - - 1,578,178 0.215%

Euro Currency Unit 5,649,816 9,180,109 17,428,648 - 20,839,504 (15,677,073) 37,421,004 5.100%

Hong Kong Dollar - - 4,273,802 - - - 4,273,802 0.582%

Indian Rupee - - - - - (30,582) (30,582) -0.004%

Japanese Yen 19,018 - 9,036,536 - - (1,003,122) 8,052,432 1.097%

Mexican New Peso 23 - - - - - 23 0.000%

Polish Zloty 12,285 - - - - - 12,285 0.002%

British Pound Sterling 10,393 5,254,153 11,841,930 - - (5,403,875) 11,702,601 1.595%

S. African Comm Rand 9,904 - - - - - 9,904 0.001%

South Korean Won - - 3,140,118 - - - 3,140,118 0.428%

Swiss Franc 754 - 7,466,704 - - (99,665) 7,367,793 1.004%

Currency Subtotals 5,702,808 14,696,751 54,765,506 - 20,839,504 (22,499,443) 73,505,126 10.017%

U.S. Dollar (5,247,302) 153,197,495 412,975,192 58,761,226 19,380,756 21,244,235 660,311,602 89.983%

TOTAL 455,506$ 167,894,246$ 467,740,698$ 58,761,226$ 40,220,260$ (1,255,208)$ 733,816,728$ 100%0.06% 22.88% 63.74% 8.01% 5.48% -0.17% 100%

Footnotes:(1) A negative value in the instruments noted above is the result of netting long and short positions against each other. This strategy is utilized as a means to mitigate interest rate risk obtained from holding long positions in mortgages and/or corporate bonds.(2) A negative currency position is obtained by accepting an obligation to deliver the designated currency to a counterparty at a specified date in the future. This position is favorable for portfolio returns if the currency depreciates in value versus the U.S. dollar over the period of the contract.

Foreign Currency Risk Exposure

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Tucson Supplemental Retirement System June 30, 2015

Financial Section 22

5. SECURITIES LENDING

The Board of Trustees for the Tucson Supplemental Retirement System permits the custodian bank, BNY Mellon, to lend securities to broker-dealers and other entities. Each loan is executed with a simultaneous agreement to return the collateral for the same securities in the future. The custodian bank lends U.S. securities for collateral initially valued at 102% of the fair value of the securities plus any accrued interest. Non-U.S. securities are loaned for collateral initially valued at 105% of the fair value of the securities plus any accrued interest. Collateral is marked-to-market daily. As of June 30, 2015, the carrying amount and fair value of securities on loan was $19,213,060. If the fair value of the pledged collateral falls below the specified levels, additional collateral is required to be pledged by the close of the next business day. In the event of a borrower’s default, the custodian bank is obligated to indemnify the lender if, and to the extent that, the fair value of the collateral is insufficient to replace the loaned securities. BNY Mellon’s responsibilities include performing appropriate borrower and collateral investment credit analysis, demanding adequate types and levels of collateral, and complying with applicable Department of Labor and Federal Financial Institutions Examination Council regulations covering securities lending. Although the average term of the security loans is one week, each loan can be terminated at will by either the lender or the borrower. Cash collateral is invested in a short-term investment pool, which on average had a weighted maturity of 30 days. The relationship between the maturities of the investment pool and the security loans are affected by the maturities of the loans made by other entities that use the agent’s pool. The lender cannot pledge or sell collateral securities received until, and unless, a borrower defaults. There were no significant violations of legal or contractual provisions and no borrower or lending agent default losses known to the securities lending agent. As of June 30, 2015, the lenders had no credit risk exposure to borrowers because the fair value of collateral held exceeded the fair value of securities loaned. 6. DERIVATIVES

The Tucson Supplemental Retirement System permits the limited use of derivatives by its international equity and external fixed income managers. Examples of derivative instruments permitted, but not limited to, are forward foreign currency exchange contracts, financial futures, options, swaps and swaptions. All derivative instruments utilized are considered “Investment Derivative Instruments” as defined in GASB 53 “Accounting and Financial Reporting for Derivative Instruments.” The statement addresses the recognition, measurement, and disclosure regarding derivative instruments entered into by the System. The following table is a summary of the various derivative instruments utilized by the System’s external fixed income manager as of June 30, 2015. Changes in Fair Value is included as part of the overall Increase (Decrease) in Fair Value of Investments in the Statement of Changes in Plan Net Position. Fair Value is included as part of investments listed under Corporate Bonds & Other Fixed Income Instruments in the Statement of Plan Net Position.

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Tucson Supplemental Retirement System June 30, 2015

Financial Section 23

Whenever possible, the investment manager bases the valuation of derivatives on market information; however, where market quotes are not readily available, an independent third party pricing vendor is utilized. Exchange traded derivatives are an example of derivatives where market quotes are available, whereas over-the counter (OTC) derivatives are not traded over standardized markets. In addition to the principal risks noted above, Forward Foreign Currencies, Credit Default Swaps and Interest Rate Swaps are also subject to counterparty risk. In general, counterparty risk is the risk of loss of an amount expected to be delivered under an agreement in the event of the default or bankruptcy of the counterparty. Generally, counterparty risk is controlled through dealing with a number of different counterparties reasonably deemed to be creditworthy by the investment manager and using agreements with counterparties that permit netting of obligations. Counterparty risk with swaps is limited by execution under standardized International Swap and Derivatives Association Agreements. These contracts allow for the mutual exchange of collateral should an overall unsecured market value exceed a certain threshold (e.g., $250,000). Credit, interest rate and foreign currency risks are addressed in previous sections of Note 4. These risks, applicable to other fixed income and foreign investments, are not substantially different from principal risks associated with derivative instruments.

Investment Derivative Instrument

Notional Amount (1)

Changes in Fair Value Fair Value Principal Risk

Government Futures 6,600,000 (18,000,887)$ 7,920,152$ Interest Rate

Options (12,100,000) (63,509)$ (63,509)$ Credit

Currency Forwards (Net) 143,140,120 6,062,589$ 22,487,786$ Foreign Currency

Forward Transactions (2) 300,000 300,797$ 300,797$ Credit

Credit Default Swaps 12,530,000 (1,318,107)$ (930,106)$ Credit

Interest Rate Swaps (14,650,000) 317,048$ (42,841)$ Interest Rate

Footnotes:(1) The Notional Amount is the number of currency units (stated in U.S. and/or foreign currencies), shares or other units

specified in the derivative instrument. It is a stated amount on which payments depend.

(2) Not including Morgage TBA

Derivatives

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Tucson Supplemental Retirement System June 30, 2015

Financial Section 24

7. ACTUARIAL METHODS AND ASSUMPTIONS

The total pension liability was determined by an actuarial valuation as of June 30, 2015, using the following actuarial assumptions, applied to all periods included in the measurement:

Inflation 3.00% Salary increases 3.00% to 6.50% including inflation Investment Rate of Return 7.25% Mortality rates were based on the RP-2000 Combined Mortality Table for males and females, projected with Scale BB to 2020. The actuarial assumptions used in the June 30, 2015 valuation were based on the results of an actuarial experience study for period July 1, 2008 – June 30, 2013. Additional Details: In the June 30, 2015 actuarial valuation, the level-percent contribution requirements and actuarial present values are calculated using the entry age actuarial cost method. The actuarial assumptions included (a) 7.25 percent investment rate of return (net of administrative expenses); (b) projected salary increases at 3.00% compounded annually; and (c) additional projected salary increases of 0.00% to 3.50% attributable to seniority / merit. The assumptions do not include postretirement benefit increases or inflation assumptions, because there is no guarantee or requirement that future increases will be granted. The projection of benefits for financial accounting purposes also does not explicitly incorporate the potential effects of legal or contractual funding limitations, since they do not apply. The actuarial value of assets was determined using techniques that spread the effects of short term volatility in the market value of assets over a five-year smoothing period, which was first adopted for the plan year ended June 30, 2009. The Unfunded Actuarial Accrued Liability is being amortized as a level percentage of payroll on an open period of 20 years; the new amortization period was first adopted for the plan year ended June 30, 2013. There were no benefit changes during the year ended June 30, 2015. The assumptions are selected based upon the recommendation of the plan’s actuary and adopted by the Board of Trustees. Measurement of Net Pension Liability: The net pension liability is measured as the total pension liability, less the amount of the pension plan’s fiduciary net position. In actuarial terms, this will be the accrued liability less the market value of assets not the smoothed actuarial value of assets that is often encountered in actuarial valuations performed to determine the employer’s contribution requirements. A single discount rate of 7.25% was used to measure the total pension liability. This single discount rate was based on the expected rate of return on pension plan investments of 7.25%. The projection of cash flows used to determine this single discount rate assumed that plan member contributions will be made at the current contribution rate and that employer contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on these assumptions, the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investment was applied to all period of projected benefit payments to determine the total pension liability.

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Financial Section 25

REQUIRED SUPPLEMENTARY INFORMATION

2014 2015Total Pension Liability

Service Cost 14,825,019$ 15,753,944$ Interest Cost 66,915,612 70,688,775Differences Between Expected and Actual Experience 325,889 (7,815,270)Changes of Assumptions 76,945,563 (31,210,057)Benefit Payments, Including Refunds of Member Contributions (66,002,013) (67,612,351)Net Change in Total Pension Liability 93,010,070 (20,194,959)

Total Pension Liability - Beginning 948,562,453 1,041,572,523Total Pension Liability - Ending 1,041,572,523$ 1,021,377,564$

Plan Fiduciary Net PositionContributions - Employer 34,189,288$ 33,985,523$ Contributions - Member 7,338,543 7,531,845Net Investment Income 119,729,154 30,684,188Benefit Payments, Including Refunds of Member Contributions (66,002,013) (67,612,351)Administrative Expense (735,739) (650,405)Other 171,077 118,247Net Change in Plan Fiduciary Net Position 94,690,310 4,057,047

Plan Fiduciary Net Position - Beginning 641,046,190 735,736,500Plan Fiduciary Net Position - Ending 735,736,500$ 739,793,547$

Net Pension Liability - Ending 305,836,023 281,584,017

Plan Fiduciary Net Position as a Percentage of the Total Pension Liab 70.64% 72.43%

Covered Employee Payroll 126,639,423$ 123,414,560$

Net Pension Liability as a Percentage of Covered Employee Payroll 241.50% 228.16%

SCHEDULE OF CHANGES IN THE CITY'S NET PENSION LIABILITY AND RELATED RATIOSYEAR ENDED JUNE 30, 2015

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Financial Section 26

2014 2015

Annual Money-Weighted Rate of Return, Net of Investment Expense 19.11% 4.17%

CITY OF TUCSON, ARIZONAREQUIRED SUPPLEMENTARY INFORMATION

SCHEDULE OF PENSION INVESTMENT RETURNS

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Financial Section 27

Fiscal Year Ending June

30,

Actuarial Valuation Date

June 30,

Actuarially Determined

Rate (%)

Actual Contribution

Rate (%)Actual Contribution

Rate Deficiency

(Excess) (%)

Contribution Deficiency

(Excess)

Covered Payroll at Val Date

Covered Payroll during FY

2006 2004 14.83 14.83 23,643,630 0.00 n/a 149,781,753 149,781,753 2007 2005 15.04 15.04 25,958,330 0.00 n/a 162,149,200 162,149,200 2008 2006 15.21 15.21 25,232,745 0.00 n/a 155,855,162 155,855,162 2009 2007 14.67 14.67 24,358,460 0.00 n/a 159,249,822 159,249,822 2010 2008 16.84 16.84 27,601,156 0.00 n/a 153,982,399 153,982,399 2011 2009 18.02 18.02 28,756,890 0.00 n/a 149,924,649 149,924,649 2012 2010 23.38 23.38 34,824,621 0.00 n/a 141,459,257 141,459,257 2013 2011 28.77 28.77 34,523,315 0.00 n/a 121,631,362 121,631,362 2014 2012 27.09 27.09 34,189,288 0.00 (94,382)$ 125,003,023 125,857,903 2015 2013 26.95 27.50 33,985,523 -0.55 143,801$ 125,857,903 126,639,423

Schedule of Employer Contributions

Schedule of Contributions

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Financial Section 28

Summary of Actuarial Methods and Assumptions

NOTES TO SCHEDULE OF CONTRIBUTIONS

Valuation Date:

June 30, 2015

Notes

Actuarially determined contribution rates are calculated for the fiscal year beginning one year after the valuation date (one year lag).

Methods and Assumptions Used to Determine Contribution Rates: Actuarial Cost Method Entry Age Normal Amortization Method Level Percentage of Payroll, Open Remaining Amortization Period 20 years Asset Valuation Method 5 Year smoothed market Inflation 3.00%

Salary Increases 3.00% to 6.50% including inflation Investment Rate of Return 7.25%

Retirement Age Age-based table of rates that are specific to the type of eligibility condition. Last updated for the 2009 valuation pursuant to an experience study of the period 2009 - 2013.

Mortality

Pre and Post-retirement: RP-2000 Combined Mortality Table for males and females projected with Scale BB to 2020. Disabled retirement: RP-2000 Disabled Mortality Table for males and females.

Other Information: Notes There were no benefit changes during the year.

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Financial Section 29

Supporting Schedules June 30, 2015

Schedule of Administrative Expenses

Personal ServicesStaff Salaries 188,861$ Fringe Benefits 85,570

Total Personal Services 274,431

Professional ServicesAccounting 185,200 Actuary 57,408 Physician Services 30,331 Legal 19,449

Total Professional Services 292,388

Other Administrative ExpensesComputer Software Maint. & Hosting 13,862 Insurance 28,880 Other 4,587 Postage 10,973 Printing and Supplies 14,298 Professional Development 10,986

Total Other Administrative Expense 83,586

Total Administrative Expenses 650,405$

Trust & Custody 296,098$

Investment Consultant 243,481

Investment Management 3,552,870

Total Investment Expenses 4,092,449$

Schedule of Investment Services Expense

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INVESTMENT SECTION

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Investment Section 30

Callan Associates Inc. 1660 Wynkoop Street Suite 950 Denver, CO 80202

.

Main 303.861.1900 Fax 303.832.8230 www.callan.com

November 23, 2015 The Board of Trustees Tucson Supplemental Retirement System 255 W. Alameda Street Tucson, AZ 85701 Dear Board Members, This letter reviews the general economic environment, capital markets and investment performance of the Tucson Supplemental Retirement System (“TSRS”) for the fiscal year ended June 30, 2015. Economic Overview as of June 30, 2015 The global economic outlook demonstrated increasing dispersion the second half of 2014, with growth in the U.S. solidifying while economic progress in Europe and Japan stalled. The first half of 2015, quantitative easing in Europe and Abenomics in Japan bolstered those regions’ economies while growth expectations in the U.S. have been revised downward. The Fed has maintained a zero rate policy since the end of their quantitative easing program in October 2014. They are expected to raise rates towards the end of 2015, but have yet to meet their dual mandate of a 2% inflation rate and full employment. Core inflation, which excludes food and energy prices, increased 1.8% year over year in June. Since the collapse of oil prices in late 2014, headline inflation figures, which include food and energy prices, have been mostly flat. The U.S. unemployment rate fell to 5.3% in June from the 6.1% mark at the start of the fiscal year. An average of 205,000 jobs was added to payrolls each month the first half of 2015. While the headline employment rate is impressive, the labor force participation rate reached a 38-year low of 62.6% at the end of June. U.S. GDP has been volatile over the course of the past fiscal year. Strong figures wrapped up 2014, while the first two quarters of 2015 yielded 0.6% and 2.3% annualized growth. Furthermore, revisions of GDP between 2012 and 2014 reveal average annual growth of only 2%, 0.3% weaker than previously estimated. Greece and China stole most of the global spotlight starting in June, ushering increased volatility into world markets. Greece began negotiations with creditors when it became clear they were not going to be able to make debt repayments due at the end of June. After tumultuous negotiations, Greece officially defaulted when it missed a $1.73 billion payment to the IMF on June 30th. A third bailout deal has been proposed to Greece. China has been experiencing issues relating to its slowing growth rate. Officials have attempted to prop up the country’s consumption by reducing reserve requirements, interest rates, and import duties. Despite these efforts, the Shanghai Composite Index fell nearly 20% between June 12th and June 30th. Domestic Equity Overview The fiscal year ended June 30, 2015 brought positive returns across the domestic equity market. The S&P 1500 Index, a broad market indicator for the U.S. stock market, finished the fiscal year with a return of +7.31%. Large cap stocks performed better than small cap stocks during fiscal year 2015. The S&P 600, a gauge of small cap stock performance, underperformed its large cap peer (the S&P 500 Index), +6.72% to +7.42%. Growth stocks outperformed value stocks. The Russell 3000 Growth Index advanced 10.69% versus a gain of 3.86% for the Russell 3000 Value Index. During the fiscal year ended June 30, 2015 the TSRS domestic equity investments returned 9.01%

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Investment Section 31

Tucson Supplemental Retirement System November 23, 2015 2

International Equity Overview Developed International equity markets, as represented by the MSCI EAFE Index, fell in fiscal year 2015. The index returned -4.22%, lagging the +23.57% performance in fiscal year 2014. Growth fared better than Value in the international developed equity space. For the trailing twelve-months ended June 30, 2015, the MSCI EAFE Growth Index lost 1.33% while the MSCI EAFE Value Index fell 7.09%. Emerging market returns trailed developed market returns in as the MSCI Emerging Markets Index dipped 5.12%. Overall, it was a lackluster year for international stock markets. For the fiscal year of 2015, the international equity asset class returned -5.79% for TSRS. Domestic Fixed Income Overview The U.S. bond market, as measured by the Barclays Capital Aggregate Bond Index, returned 1.86%. The yield curve flattened then steepened again during fiscal year 2015, taking longer duration bond prices on a ride. The Barclays Capital Government Index rose 2.27% over the fiscal year. Long duration bond yields were lower than in June 2014 which boosted the Barclays Capital Government Long Index 6.20%. The Barclays Capital Credit Index rose a modest 0.93% for the trailing twelve-months as spreads widened to end the fiscal year. High yield bonds, except for those at the very end of the curve, suffered as the Barclays Capital Corporate High Yield Index fell 0.40% for the year ended June 30, 2015. For the fiscal year 2015, TSRS’ domestic fixed income investments returned 0.78%. Real Estate Overview The NCREIF Property Index, a measure of the private real estate market, gained 12.98% during the 2015 fiscal year. The index was positive in each of the four quarters, extending its positive streak to 22 straight quarters. The FTSE NAREIT Equity Index, a measure of the public securities real estate market, gained 4.11%. During the year ended June 30, 2015 TSRS’ real estate portfolio returned 13.92% Infrastructure Overview By definition, infrastructure assets are essential to the economic health and productivity of civilized society. They include the basic facilities, services, and installations needed for the functioning of a community, such as transit and communications systems; both potable and sewage water lines; and electricity access. They also include such public entities as schools, post offices, and incarceration facilities. Most of these facilities have traditionally been owned and regulated by municipalities and states. The private sector’s participation has been limited, to varying degrees, to the areas of design, construction, and operation. Budget and fiscal pressures limit the ability of public authorities to maintain existing infrastructure, much less to build the new facilities required by a growing population. In response to these problems, many municipalities and states have sold or are contemplating the sale of their infrastructure assets to private investors. Over the one-year period ended June 30, 2015, the infrastructure investment program for TSRS returned -2.75%. Total Fund Review The Tucson Supplemental Retirement System gained 4.63% for the fiscal year, above the benchmark return of 4.34% and ranked in the 8th percentile versus other public defined benefit plans. Cordially,

Paul Erlendson Gordon Weightman, CFA Senior Vice President Vice President

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Investment Section 32

Outline of Investment Policies The asset allocation policy includes a 61% allocation to equity securities: 36% to large U.S. stocks; split among S&P 500 index, enhanced index, large capitalization growth and value accounts; 10% to mid-cap and small-cap U.S. stock accounts; and 15% to foreign stock accounts. There is also an allocation of 26% to fixed income, 8% to equity real estate and 5% to infrastructure. The Board has set an asset allocation target range on each asset class, sub-class, and manager. The Board of Trustees has adopted a policy of rebalancing the portfolio when the actual allocation falls above or below the target range. Over the long term, asset allocation policy will be the primary determinant of the returns generated by the TSRS pension fund and the associated volatility of returns. In particular, the level of equity exposure is the key element within the TSRS pension investment policies.

In developing asset allocation policies for its pension plan, the Board examined asset and liability projections to evaluate possible results over the next ten years. These projections examined the risk/return tradeoffs of alternative asset classes, as well as alternative levels of equity exposure. Through incorporating the results of these projections with its risk posture, as well as considering typical practices and practical investment issues, the Board has developed the following asset mix guidelines:

Minimum Target Maximum

Equities: Large Capitalization 31% 36% 41% Small/Mid Capitalization 6% 10% 14% International 13% 15% 17%

Total Equities 56% 61% 66%

Fixed Income 21% 26% 31%

Real Estate 6% 8% 10%

Infrastructure 3% 5% 7%

Percent of Total Pension Fund

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Investment Section 33

Separate target ranges are also set for each investment manager within an asset class and are monitored in conjunction with the overall asset allocation. TSRS monitors its asset mix and rebalances its portfolio mix at any time that a primary asset class (i.e., equities, fixed-income, and real estate), secondary asset class (i.e., domestic equities, international equities), portfolio style, or manager reaches the minimum or maximum allocation specified. Staff is authorized to direct rebalancing and report to the Board.

Investment Objectives Total Pension Fund Performance Objectives:1 The TSRS Pension Fund’s return will be, in part, a function of the capital market environment in which the plan’s investment managers operate. Therefore, regardless of whether or not the market environment permits the achievement of substantial real returns, the TSRS expects any active investment managers that it retains to produce results that are above average relative to other actively-managed funds and relative to passive alternatives. Investment managers should cover the fees paid and provide a return increment that justifies the risk assumed in active management. On a rolling three-year basis, the annualized total return of the portfolio should exceed the annualized total return of the following custom index: • Standard & Poor’s 500 Stock Index (36% weight) • Russell 2500 Stock Index (10% weight) • MSCI All Country World, ex-U.S. Stock Index (15% weight) • Barclays Capital Aggregate Bond Index (23% weight) • Barclays Capital High Yield Bond Index (3% weight) • NCREIF ODCE Real Estate Index (8% weight) • CPI + 4% (5% weight)

1 The investment objectives defined herein assume that performance comparisons will be based on a before-fee analysis, unless otherwise indicated.

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Investment Section 34

Individual Managers Performance Objectives On a rolling three-year basis, the annualized total return earned by an actively managed portfolio should place the account in a competitive ranking (i.e., top 40%) relative to a peer group of managers. In addition, the managers should outperform the following market index benchmarks: T. Rowe Price (Large Cap Growth Equity) • Exceed the annualized total return of the Russell 1000 Growth Index

BlackRock Value (Russell 1000 Value Index) • Match the annualized total return of the Russell 1000 Value Index

Alliance Capital (S&P 500 Index) • Match the annualized total return of the S&P 500 Index

PIMCO StocksPlus (Enhanced Index) • Exceed the annualized total return of the S&P 500 Index

Champlain Investment Partners (Mid Cap Core Equity) • Exceed the annualized total return of the Russell Mid Cap Index

Pyramis Global Advisors (Small Cap Equity) • Exceed the annualized total return of the Russell 2000 Stock Index

Aberdeen Asset Management (International Core Equity) • Exceed the annualized total return of the MSCI AC World ex-U.S. Index

Causeway Capital Management (International Value Equity) • Exceed the annualized total return of the MSCI EAFE Index

PIMCO (Custom Fixed Income) • Exceed the annualized total return of a customized fixed income benchmark composed of

25% BC Mortgage, 25% BC Credit, 25% BC High Yield and 25% JP Morgan EMBI index BlackRock U.S. Debt Index Fund (U.S. Investment Grade Fixed Income) • Match the annualized total return of the BC Aggregate Bond Index

JP Morgan Strategic Property Fund (Core Real Estate) • Exceed the annualized total return of the NCREIF ODCE Real Estate Index

LaSalle Income & Growth Fund IV (Value Added Real Estate) • Exceed the annualized total return of the NCREIF ODCE Real Estate Index

JP Morgan Income & Growth Fund (Value Added Real Estate) • Exceed the annualized total return of the NCREIF ODCE Real Estate Index

Macquarie European Infrastructure Fund 3 (European Infrastructure) • Exceed the annualized total return of the CPI + 4%

SteelRiver Infrastructure Fund North America (North America Infrastructure) • Exceed the annualized total return of the CPI + 4%

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Investment Section 35

Year Ended

Annual Return

3-Year Annualized

Return

5-Year Annualized

Return

10-Year Annualized

Return

6/30/15 4.6% 12.9% 12.6% 7.1%

6/30/14 19.6% 12.1% 14.1% 7.5%

6/30/13 14.8% 13.2% 5.0% 7.4%

6/30/12 2.4% 12.1% 1.2% 6.2%

6/30/11 23.2% 2.8% 4.0% 5.1%

6/30/10 11.6% -5.6% 1.8% 2.1%

6/30/09 -21.0% -4.1% 1.3% 2.0%

6/30/08 -4.6% 7.3% 9.8% 5.5%

6/30/07 17.2% 12.3% 11.5% 7.8%

6/30/06 10.7% 12.5% 6.2% 7.8%

Last Ten Fiscal Years Ended June 30, 2015Investment Results by Year

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Investment Section 36

One Three FiveYear Years Years

TOTAL PORTFOLIOTSRS 4.63% 12.86% 12.64%Custom Benchmark (2) 4.34% 11.27% 11.70%

EQUITY FUNDSAlliance S&P 500 Index 7.43% 17.25% 17.26%S & P 500 Index 7.42% 17.31% 17.34%

PIMCO StocksPlus 7.57% 19.56% 19.74%S & P 500 Index 7.42% 17.31% 17.34%

BlackRock Russell 1000 Value Index 4.34% 17.46% 16.61%Russell 1000 Value Index 4.13% 17.34% 16.50%

T. Rowe Price Large Cap Growth (Inception date: 2/12) 12.35% 21.55% 20.60%Russell 1000 Growth Index 10.56% 17.99% 18.59%

Champlain Investment Partners (Inception date: 7/10) 10.27% 19.58% 18.62%Russell Mid Cap Index 6.63% 19.26% 18.23%

Pyramis Small Cap 15.07% 22.65% 21.92%Russell 2000 Index 6.49% 17.81% 17.08%

Causeway International Value Equity -2.38% 13.83% 12.28%MSCI EAFE Index -4.22% 11.97% 9.54%

Aberdeen EAFE Plus Equity (Inception date: 4/12) -10.16% 5.85% 8.39%MSCI All Country World ex-U.S. Index (Net) -5.26% 9.44% 7.76%

FIXED INCOME FUNDSBlackRock U.S. Debt Fund (Inception date: 1/12) 1.99% 1.98% 3.49%Barclays Aggregate Bond Index 1.86% 1.83% 3.35%

PIMCO Custom Fixed Income 0.05% 4.23% 5.56%Custom Index (3) 0.75% 3.83% 4.99%

REAL ESTATE FUNDSJP Morgan Strategic Property Fund 13.37% 13.84% 14.47%NCREIF ODCE Index 14.43% 13.11% 14.41%

JP Morgan Income and Growth Fund 16.19% 17.64% 20.79%NCREIF ODCE Index 14.43% 13.11% 14.41%

Notes: All data provided by independent investment consultant, Callan Associates Inc. (1) Geometrically compounded, time-weighted rates of return (all returns reported gross of fees) (2) Custom Benchmark = 36% S&P 500 Index + 10% Russell 2500 + 15% MSCI ACWI ex-U.S (Net) 26% Barclays Capital Aggregate + 8% NCREIF ODCE + 5% CPI+4% (3) Custom Index = 25% Barclays Capital Mortgage + 25% Barclays Capital Credit + 25% Barclays Capital High Yield + 25% JP Morgan EMBI Global

Schedule of Investment ResultsFor Periods Ended June 30, 2015

Annualized Returns (1)

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Investment Section 37

One Three FiveYear Years Years

INFRASTRUCTURE FUNDSMacquarie European Infrastructure Fund 3 (Funding Completed) -9.64% 5.47% 7.96%CPI + 4% 3.62% 5.14% 5.80%

SteelRiver Infrastructure Fund North America (Funding in progress) 5.97% 5.22% 7.01%CPI + 4% 3.62% 5.14% 5.80%

Notes: All data provided by independent investment consultant, Callan Associates Inc. (1) Geometrically compounded, time-weighted rates of return (all returns reported gross of fees)

Schedule of Investment ResultsFor Periods Ended June 30, 2015 (Continued)

Annualized Returns (1)

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Investment Section 38

Manager StyleLarge U.S.

StocksSmall/Mid

U.S. StocksForeign Stocks

Fixed Income Real Estate

Infra-structure

Short Term Total

Alliance Capital S & P 500 Index 86,313$ -$ -$ -$ -$ -$ 489$ 86,802$

T. Rowe Price Large Cap Growth 78,497 - - - - - 323 78,820

BlackRock Russell Value

Large Cap Value Index 78,628 - - - - - - 78,628

PIMCO StocksPlus Enhanced Index 42,899 - - - - - - 42,899

Champlain Investments Mid-Cap Core - 42,488 - - - - 652 43,140

Pyramis Global Advisors Small-Cap Core - 43,308 - - - - 586 43,894

Causeway Capital

Foreign Stocks-Value - - 56,220 - - - 1,376 57,596

Aberdeen Asset Mgmt

Foreign Stocks-Core - - 41,264 - - - - 41,264

BlackRock U.S. Debt

U.S. Govt/Credit Bonds - - - 61,449 - - - 61,449

PIMCO Custom Fixed Income

U.S. & Foreign Bonds

- - - 96,571 - - 4,928 101,499

JPM Strategic Property Fund Core Real Estate - - - - 42,273 - - 42,273

LaSalle Income & Growth Fund

Value Added Real Estate - - - - 62 - - 62

JPM Income & Growth Fund

Value Added Real Estate - - - - 16,627 - - 16,627

Macquarie (MEIF3)

European Infrastructure - - - - - 20,840 - 20,840

SteelRiver IFNANorth American

Infrastructure - - - - - 19,381 - 19,381

Liquidity FundCash & Cash Equivalents - - - - - - 493 493

TOTAL 286,337$ 85,796$ 97,484$ 158,020$ 58,962$ 40,221$ 8,847$ 735,667$

Notes:(1) The Asset Summary does not include the City pooled investment account. (2) Assets are reflected on a trade date basis.(3) Short-term investments have been adjusted for the net impact of unsettled transactions in order to report on a trade datebasis. (4) Each asset class includes receivables and payables.

Asset SummaryBy Manager and Type of Investment (in thousands)

June 30, 2015

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Investment Section 39

Manager Amount Percentage Amount PercentageAlliance Capital 86,802$ 11.8% 80,923$ 11.0%T. Rowe Price 78,820 10.7% 73,567 10.0%BlackRock Russell Value 78,628 10.7% 73,567 10.0%PIMCO StocksPlus 42,899 5.8% 36,783 5.0%

Large U.S. Stocks 287,149 39.0% 264,840 36.0%

Champlain Investment Partners 43,140 5.9% 36,783 5.0%Pyramis Global Advisors 43,894 6.0% 36,783 5.0%

Small/Mid-Cap U.S. Stocks 87,034 11.9% 73,566 10.0%

Causeway Capital 57,596 7.8% 55,175 7.5%Aberdeen Asset Management 41,264 5.6% 55,175 7.5%

Foreign (International) Stocks 98,860 13.4% 110,350 15.0%

Total Equities 473,043 64.3% 448,756 61.0%

BlackRock U.S. Debt 61,449 8.4% 73,566 10.0%PIMCO Custom Fixed Income 101,499 13.8% 117,707 16.0%

Fixed Income (Bonds) 162,948 22.2% 191,273 26.0%

JPM Strategic Property Fund 42,273 5.7% 36,783 5.0%LaSalle Income & Growth Fund 62 0.0% 11,035 1.5%JPM Income & Growth Fund 16,627 2.3% 11,035 1.5%

Real Estate 58,962 8.0% 58,853 8.0%

Macquarie (MEIF3) 20,840 2.8% 18,392 2.5%SteelRiver IFNA 19,381 2.6% 18,393 2.5%

Infrastructure 40,221 5.4% 36,785 5.0%

Liquidity Fund 493 0.1% - 0.0%Total 735,667$ 100% 735,667$ 100%

Manager and Asset Diversification (in thousands)June 30, 2015

Actual Target

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Investment Section 40

Asset Class 2015 2014 2013 2012 2011

U.S. Stocks 51% 50% 48% 46% 46%

Foreign (International) Stocks 13% 14% 14% 13% 15%

Total Equities 64% 64% 62% 59% 61%

Fixed Income (Bonds) 22% 22% 24% 26% 26%

Real Estate 8% 8% 8% 8% 6%

Infrastructure 6% 6% 6% 7% 6%

Cash 0% 0% 0% 0% 1%

100% 100% 100% 100% 100%

Asset Allocation by Asset ClassLast Five Fiscal Years

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Tucson Supplemental Retirement System June 30, 2015

Investment Section 41

Rating FairPar Value Bond Coupon Rate Due (1) Value

1,200$ ROCKIES EXPRESS PIPELINE 144A 6.850% 07/15/18 Ba2 1,280 1,100 PETROBRAS GLOBAL FINANCE BV 5.375% 01/27/21 Ba2 1,058 1,000 INTERNATIONAL LEASE FINAN 144A 6.750% 09/01/16 Ba2 1,052

900 HCA INC 6.500% 02/15/20 B1 1,006 887 RBSCF TRUST 2010 RR4 CMLA 144A Variable 12/16/49 Aaa 921 500 CO-OPERATIVE GROUP HOLDIN REGS Variable 09/08/20 Aaa 847 791 CSMC SERIES 2010-UD UD1 A 144A Variable 12/16/49 Aaa 823 400 BARCLAYS BANK PLC REGS 10.000% 05/21/21 Aaa 818 800 CREDIT AGRICOLE SA REGS Variable 01/29/49 Ba1 818 800 BARCLAYS PLC 2.875% 06/08/20 Aaa 794

(1) Per Moody's Investors Service, Inc.

FairShares Stock Value

38,193 APPLE INC 4,790$ 10,825 AMAZON.COM INC 4,699 56,420 VISA INC 3,789 25,134 THE BOEING CO 3,487 2,766 PRICELINE GROUP INC 3,184 5,579 GOOGLE INC 3,013

66,618 MICROSOFT CORP 2,897 33,250 DANAHER CORP 2,846 32,464 FACEBOOK INC 2,784 11,950 MCKESSON CORP 2,686

A complete list of portfolio holdings is available by contacting the City of Tucson, Treasury Division, 255 W. Alameda Street, 5 West, Tucson, AZ 85701-1303

Ten Largest Bond Holdings(By Market Value)

June 30, 2015(dollars in thousands)

June 30, 2015(dollars in thousands)

Ten Largest Stock Holdings(By Market Value)

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Tucson Supplemental Retirement System June 30, 2015

Investment Section 42

Assets UnderManagement Fees

Investment Manager FeesFixed Income Managers

BlackRock U.S. Debt 61,449,037$ 33,854$

PIMCO (Custom Fixed Income) 101,498,576 493,793 Total Fixed Income 162,947,613$ 527,647$

Equity Managers

Alliance Capital Management 86,801,249$ 34,774$

BlackRock Russell Value Index 78,627,940 31,585

T. Rowe Price 78,820,457 388,469

Causeway Capital Management 57,595,871 371,025

Pyramis Global Advisors 43,894,702 295,366

Aberdeen Asset Management 41,264,449 346,956

PIMCO StocksPlus 42,899,177 186,625

Champlain Investment Partners 43,140,326 351,884 Total Equity 473,044,171$ 2,006,684$

Liquidity Account 493,410 -

Real Estate Managers

JPM Strategic Property Fund 42,272,631$ 399,767$

JPM Income & Growth Fund 16,426,595 194,099

LaSalle Income & Growth Fund IV 62,000 2,300 Total Real Estate 58,761,226$ 596,166$

Infrastructure Managers

Macquarie (MEIF3) 20,839,504$ 187,779$

SteelRiver IFNA 19,380,756 234,594 Total Infrastructure 40,220,260$ 422,373$

Total Assets (Trade date basis) 735,466,680$ Total Investment Management Fees 3,552,870$

Other Investment Service FeesTrust & Custodian Fees

BNY Mellon 296,098$

Security Lending - Bank & Administration Fees

BNY Mellon 65,676

Consulting & Performance Management

Callan Associates Inc. 243,481

Total Other Investment Service Fees 605,255$

Schedule of FeesJune 30, 2015

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Tucson Supplemental Retirement System June 30, 2015

Investment Section 43

Broker Description Shares CommissionsCommissions

Per Share

MORGAN STANLEY & CO INC, NY 432,056 8,145 0.0189

MERRILL LYNCH INTL LONDON EQUITIES 538,628 7,996 0.0148

CREDIT SUISSE, NEW YORK (CSUS) 379,831 7,419 0.0195

GOLDMAN SACHS & CO, NY 416,023 7,029 0.0169

J.P. MORGAN CLEARING CORP, NEW YORK 320,109 6,064 0.0189

UBS WARBURG, LONDON 268,081 5,777 0.0216

STIFEL NICOLAUS 129,137 3,870 0.0300

RBC CAPITAL MARKETS LLC, NEW YORK 216,564 3,387 0.0156

BARCLAYS CAPITAL, LONDON (BARCGB33) 163,363 3,356 0.0205

JEFFERIES & CO INC, NEW YORK 140,357 3,248 0.0231

CITIGROUP GLOBAL MARKETS LTD, LONDON 98,453 3,035 0.0308

RAYMOND JAMES & ASSOC INC, ST PETERSBURG 88,235 3,029 0.0343

MERRILL LYNCH PIERCE FENNER SMITH INC NY 139,663 2,962 0.0212

DEUTSCHE BK SECS INC, NY (NWSCUS33) 157,055 2,854 0.0182

INVESTMENT TECHNOLOGY GROUP, NEW YORK 113,215 2,654 0.0235

UBS SECURITIES LLC, STAMFORD 111,860 2,185 0.0195

CITIGROUP GBL MKTS INC, NEW YORK 117,827 2,152 0.0183

STATE STREET BROKERAGE SVCS, BOSTON 98,800 2,050 0.0207

BNY CONVERGEX, NEW YORK 132,320 1,961 0.0148

LIQUIDNET INC, BROOKLYN 81,850 1,951 0.0238

WILLIAM BLAIR & CO, CHICAGO 45,950 1,746 0.0380

INSTINET EUROPE LIMITED, LONDON 61,740 1,541 0.0250

BAIRD, ROBERT W & CO INC, MILWAUKEE 39,600 1,412 0.0357

DAIWA SECS AMER INC, NEW YORK 70,600 1,295 0.0183

GOLDMAN SACHS EXECUTION & CLEARING, NY 43,657 1,179 0.0270

PIPER JAFFRAY & CO, MINNEAPOLIS 31,900 1,118 0.0351

ITG INC, NEW YORK 82,645 1,102 0.0133

J P MORGAN SECS LTD, LONDON 59,188 1,072 0.0181

MORGAN STANLEY & CO INTL LTD, SEOUL 21,099 1,056 0.0501

VARIOUS BROKERS - LESS THAN $1000 1,527,695 27,161

TOTAL 6,127,501 119,806

AVERAGE COMMISSION RATE 0.0196$

Schedule of CommissionsJune 30, 2015

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ACTUARIAL SECTION

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Tucson Supplemental Retirement System June 30, 2015

Actuarial Section 44

October 21, 2015

The Board of Trustees

Tucson Supplemental Retirement System Tucson, Arizona

Re: Actuarial Valuation of the Tucson Supplemental Retirement System as of June 30, 2015

Dear Board Members:

We are pleased to present the Report on the actuarial valuation of the Tucson Supplemental Retirement System as of June 30, 2015. This Report presents the results of the June 30, 2015 actuarial valuation of the Tucson Supplemental Retirement System. The Report describes the current actuarial condition of the Tucson Supplemental Retirement System, determines recommended annual employer and employee contribution rates, and analyzes changes in these required rates. This report should not be relied on for any purpose other than the purpose described in the primary communication. Information needed to comply with Statements No. 67 and 68 is provided in a separate accounting report.

We certify that the information included herein and contained in the June 30, 2015 Actuarial Valuation Report is accurate and fairly presents the actuarial position of the Tucson Supplemental Retirement System as of the valuation date.

Contribution Rates There are no recommended changes to the contribution rates for FY 2017. Based on the TSRS funding policy, the recommended employer rate will remain at 27.5%, and the recommended employee rates by tier will remain at 5.00%, 6.75% and 5.25%. Full details of these calculations are in the report.

Financing Objectives

The employer contributions, when combined with the contributions made by members, are intended to cover the Actuarially Determined Contribution (ADC)), which is the sum of the Normal Cost plus a 20-year open level percent-of-pay amortization payment of the Unfunded Actuarial Accrued Liability (UAAL). If the contributions made are equal to the ADC, and if all actuarial assumptions are met, there will still be an unfunded accrued liability at the end of the 20-year period. This is due to “open” amortization – an amortization method that resets the payment period to 20 years with each valuation. However, the Board has adopted a funding policy which rounds up the employee and City contribution rates, and in addition, sets a 27.50% minimum on the City contribution rate until full funding is reached. Based on this funding policy, the System is projected to reach full funding in 2031.

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Tucson Supplemental Retirement System June 30, 2015

Actuarial Section 45

Progress Toward Realization of Financing Objectives The UAAL/(surplus) and the funded ratio (ratio of the actuarial value of assets to the actuarial accrued liability) illustrate the progress toward the realization of certain financing objectives. Based on the actuarial valuation as of June 30, 2015, the Plan has an unfunded liability of $314.6 million and a funded ratio of 69.2%. The increase in the funded ratio, from 64.8% to 69.2%, is primarily due to asset gains on the smoothed or actuarial value of assets as well as liability gains from salary increases less than expected. A funded ratio less than 100% indicates an actuarially determined contribution that will require a normal cost and an amortization payment. If the contributions equal the ADC, and if all assumptions are met, the funded ratio should improve over time. The Total Actuarially Determined Contribution as a percentage of pay based on the actuarial valuation as of July 1, 2015 is 30.69% compared to the total contribution rate in the prior year of 32.23%. This total rate, net of the employee contributions, is used in setting City rates for the fiscal year beginning July 1, 2016 (FY 2017).

Benefit Provisions All of the benefit provisions reflected in this valuation are those which were in effect on June 30, 2015. There were no changes to the benefit provisions since the prior valuation. The benefit provisions are summarized in Section D of this Report.

Assumptions and Methods Since the prior valuation, the investment return assumption was changed to be net of only investment expenses, instead of investment and administrative expenses. The administrative expenses are now an explicit charge in the contribution rate calculation. There were no other changes in actuarial methods and assumptions since the prior report. The Board has sole authority to determine the actuarial assumptions used for the Plan. The assumptions that are based upon the actuary’s recommendations are internally consistent and are reasonably based on the actual past experience of the Plan.

The mortality tables include projection to 2020 to provide margin for future mortality improvement.

Future actuarial measurements may differ significantly from the current measurements presented in this report due to such factors as the following: plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; increases or decreases expected as part of the natural operation of the methodology used for these measurements (such as the end of an amortization period or additional cost or contribution requirements based on the plan’s funded status); and changes in plan provisions or applicable law. The actuarial calculations presented in this Report are intended to provide information for rational decision making.

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Tucson Supplemental Retirement System June 30, 2015

Actuarial Section 46

Data The valuation was based upon information as of June 30, 2015, furnished by Tucson Supplemental Retirement System staff, concerning Plan benefits, financial transactions, plan provisions and active members, terminated members, retirees and beneficiaries. We checked for internal and year-to-year consistency, but did not otherwise audit the data. We are not responsible for the accuracy or completeness of the information provided by Tucson Supplemental Retirement System staff.

Certification All of our work conforms with generally accepted actuarial principles and practices, and to the Actuarial Standards of Practice issued by the Actuarial Standards Board. In our opinion, our calculations also comply with the requirements of, where applicable, the Internal Revenue Code, and ERISA. The signing actuaries are independent of the plan sponsor. Leslie Thompson and Dana Woolfrey are Enrolled Actuaries and are Members of the American Academy of Actuaries, and meet the Qualification Standards of the American Academy of Actuaries. Finally, both of the undersigned are experienced in performing valuations for large public retirement systems. Respectfully submitted,

Gabriel, Roeder, Smith & Company Leslie Thompson, FSA, FCA, EA, MAAA Senior

Consultant

Dana Woolfrey, FSA, FCA, EA, MAAA Consultant

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Tucson Supplemental Retirement System June 30, 2015

Actuarial Section 47

SUMMARY OF ACTUARIAL METHODS AND ASSUMPTIONS

I. Valuation Date

The valuation date is July 1st of each plan year. This is the date as of which the actuarial present value of future benefits and the actuarial value of assets are determined.

II. Actuarial Cost Method

The actuarial valuation uses the Entry Age Normal actuarial cost method. Under this method, the employer contribution rate is the sum of (i) the employer normal cost rate, and (ii) a rate that will amortize the unfunded actuarial liability.

1. The valuation is prepared on the projected benefit basis. The present value of each

participant's expected benefit payable at retirement or termination is determined, based on age, service, sex, compensation, and the interest rate assumed to be earned in the future (7.25%). The calculations take into account the probability of a participant's death or termination of employment prior to becoming eligible for a benefit, as well as the possibility of his terminating with a service benefit. Future salary increases are also anticipated. The present value of the expected benefits payable on account of the active participants is added to the present value of the expected future payments to retired participants and beneficiaries to obtain the present value of all expected benefits payable from the Plan on account of the present group of participants and beneficiaries.

2. The employer contributions required to support the benefits of the Plan are

determined following a level funding approach, and consist of a normal cost contribution and an accrued liability contribution.

3. The normal contribution is determined using the Entry Age Normal method. Under

this method, a calculation is made to determine the average uniform and constant percentage rate of employer contribution which, if applied to the compensation of each new participant during the entire period of his anticipated covered service, would be required in addition to the contributions of the participant to meet the cost of all benefits payable on their behalf. Effective July 1, 2013 the TSRS funding policy requires the computation of normal cost separately for those members in Tier 1 and Tier 2 (the variable rate tiers).

4. The unfunded accrued liability contributions are determined by subtracting the

actuarial value of assets from the actuarial accrued liability and amortizing the result over 20 years from the valuation date as a level percentage of pay. It is assumed that payments are made throughout the year.

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Tucson Supplemental Retirement System June 30, 2015

Actuarial Section 48

5. Administrative expenses for the recent year will be added to the employer normal cost in the current valuation and will be reflected in the recommended employer rate for the upcoming fiscal year.

III. Actuarial Value of Assets

The actuarial value of assets is based on recognizing gains and losses over a five-year period where gains and losses are determined by comparing the projected market value return (based on the prior year’s market value of assets, cash flows during the year and expected investment returns on those amounts) to the actual market investment return.

IV. Actuarial Assumptions

A. Economic Assumptions

1. Investment return: 7.25% per annum, compounded annually, composed of an assumed 3.00% inflation rate and a 4.25% real rate of return. This rate represents the assumed return, net of all investment expenses.

2. Salary increase rate:

Sample Attained

Age

Percentage Increase in Salary with Less than Five Years of Service Merit Inflation Total

0

3.50 %

3.00 %

6.50 %

1 3.00 3.00 6.00 2 2.50 3.00 5.50 3 2.00 3.00 5.00 4 1.50 3.00 4.50

Sample Attained

Age

Percentage Increase in Salary with Five or More Years of Service Merit Inflation Total

25

1.50 %

3.00 %

4.50 %

30 1.50 3.00 4.50 35 1.50 3.00 4.50 40 1.00 3.00 4.00 45 0.50 3.00 3.50

50 0.25 3.00 3.25 55 0.25 3.00 3.25 60 0.25 3.00 3.25 65 0.00 3.00 3.00

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Tucson Supplemental Retirement System June 30, 2015

Actuarial Section 49

3. Payroll growth rate: In the amortization of the unfunded actuarial accrued liability, payroll is assumed to increase 3.00% per year. This increase rate is primarily due to the effect of inflation on salaries, with no allowance for future membership growth.

B. Demographic Assumptions

1. Mortality rates (pre- and post-retirement) – RP-2000 Combined Mortality Table for males and females projected with Scale BB to 2020. Mortality rates were adjusted to include margin for future mortality improvement as described in the table name above.

2. Mortality rates (post-disablement) – RP-2000 Disabled Mortality Table for

males and females.

Sample Attained

Ages

Probability of Death Pre- and Post-Retirement

Men Women

20

0.03 %

0.02 % 25 0.04 0.02 30 0.04 0.02 35 0.07 0.04 40 0.10 0.07

45 0.14 0.11 50 0.20 0.16 55 0.34 0.25 60 0.59 0.41 65 1.00 0.76

70 1.64 1.32 75 2.80 2.21 80 4.76 3.60 85 8.19 6.08 90 14.70 10.55

Sample Attained

Ages

Probability of Death Post-Disability

Men Women

20

2.26 %

0.75 % 25 2.26 0.75 30 2.26 0.75 35 2.26 0.75 40 2.26 0.75

45 2.26 0.75 50 2.90 1.15 55 3.54 1.65 60 4.20 2.18 65 5.02 2.80

70 6.26 3.76 75 8.21 5.22 80 10.94 7.23 85 14.16 10.02 90 18.34 14.00

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Tucson Supplemental Retirement System June 30, 2015

Actuarial Section 50

3. Disability rates. Sample rates shown below:

4. Termination rates (for causes other than death, disability or retirement): Termination rates are based on service and age. Termination rates are not applied after a member becomes eligible for a retirement benefit. Rates are shown:

Sample Attained

Age

Years of Credible Service

Probability of Termination

Any

0

18.00 %

1 13.00 2 10.00 3 8.00 4 7.50

20 5 & over 7.05 25 7.05 30 6.65 35 4.65 40 3.65 45 2.95 50 2.55 55 2.45

Sample Attained

Ages

Probability of Disablement Next Year

Men Women

25

0.01 %

0.01 % 30 0.07 0.07 35 0.09 0.09 40 0.14 0.14 45 0.17 0.17 50 0.25 0.25 55 0.36 0.36 60 0.48 0.48

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Tucson Supplemental Retirement System June 30, 2015

Actuarial Section 51

5. Forfeiture rates: The percentages below represent the probability that a vested terminated member will take a refund of contributions rather than receive a deferred annuity benefit.

Sample Ages

% of Vested Terminating Members Choosing

Refund at Termination Under 30 50 %

30 45 35 40 40 35 45 30 50 25 55 20

60 and Over 0

6. Retirement rates for Tier 1. For those ages 62+, the Rule of 80 retirement rates only applies if the Rule of 80 is attained by age 62.

Attained

Age

Tier 1 Members Percentage of Those Eligible Retiring During the Year

Rule of 80 Age Based Early 50-54 27.0 %

33.0 %

8.5 % 55-59 27.0

60 27.0 61 27.0 62 27.0 63 27.0 16.0 64 27.0 20.0 65 27.0 24.0

66-69 27.0 35.0 70 & Over 100.0 100.0

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Tucson Supplemental Retirement System June 30, 2015

Actuarial Section 52

Retirement rates for Tier 2. For those ages 65+, the Rule of 85 retirement rates only applies if the Rule of 85 is attained by age 65.

Attained

Age

Tier 2 Members Percentage of Those Eligible Retiring During the Year

Rule of 80 Age Based Early

60

27.0 %

24.0 %

8.5 %

61 27.0 8.5 62 27.0 8.5 63 27.0 8.5 64 27.0 8.5 65 27.0

66-69 27.0 35.0 70 & Over 100.0 100.0

Deferred vested members are assumed to retire at age first eligibility for unreduced benefits.

C. Other Assumptions

1. Percent married: 80% of employees are assumed to be married.

2. Age difference: Male members are assumed to be three years older than their spouses, and female members are assumed to be three years younger than their spouses.

3. Cost of living adjustment: None.

4. Optional forms: Members are assumed to elect the normal form of benefit.

5. Current and future deferred vested participants are assumed to retire at the earlier of age 62 and eligibility for rule of 80 for tier 1 and the earlier of age 65 and eligibility for the rules of 85 (but at least 60) for Tier 2.

6. Administrative expenses: Administrative expenses are added to the employer normal cost, before application of the round up policy.

7. Pay increase timing: End of year.

8. Decrement timing: Decrements of all types are assumed to occur mid-year.

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Tucson Supplemental Retirement System June 30, 2015

Actuarial Section 53

9. Eligibility testing: Eligibility for benefits is determined based upon the age nearest

birthday and service nearest whole year on the date the decrement is assumed to occur.

10. Decrement relativity: Decrement rates are used directly, without adjustment for multiple decrement table effects.

11. Incidence of Contributions: Contributions are assumed to be received continuously throughout the year based upon the computed percent of payroll shown in this report, and the actual payroll payable at the time contributions are made.

12. Benefit and Eligibility Service due to Accrued Sick and Vacation Leave at Retirement and Termination: Tier 1 Members are assumed to have an additional 0.019 years per year of benefit and eligibility service at early or normal retirement and termination due to accrued sick and vacation leave. This assumption was developed using sick and vacation leave and service amounts for active members included in the actuarial valuation as of June 30, 2013.

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Tucson Supplemental Retirement System June 30, 2015

Actuarial Section 54

Active Member Counts by Age and Service

as of July 1, 2015

Age Service

0-4 5-9 10-14 15-19 20-24 25-29 Over 30 Total

Under 20 0 0 0 0 0 0 0 0

20-24 32 0 0 0 0 0 0 32

25-29 119 13 1 0 0 0 0 133

30-34 140 49 19 0 0 0 0 208

35-39 111 66 67 18 1 0 0 263

40-44 104 79 86 68 23 0 0 360

45-49 83 64 90 107 48 14 1 407

50-54 80 64 91 102 80 33 19 469

55-59 63 47 99 123 69 49 27 477

60-64 36 38 46 41 32 33 21 247

65-69 4 16 8 9 10 3 7 57

Over 70 2 2 1 3 3 0 1 12

Total 774 438 508 471 266 132 76 2,665

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Tucson Supplemental Retirement System June 30, 2015

Actuarial Section 55

Tucson Supplemental Retirement System

Schedule of Funding Progress $ in thousands

Actuarial

Actuarial

Actuarial

Unfunded

UAAL as a

Valuation Value of Accrued AAL Funded Covered Percentage of Date Assets Liability (AAL) (UAAL) Ratio Payroll Covered Payroll

(1) (2) (3) (4)=(3)-(2) (5)=(2)/(3) (6) (7)=(4)/(6)

6/30/1991

$

164,268

$ 175,537

$

11,269

93.6%

$86,830

13.0%

6/30/1992 179,570 187,812 8,242 95.6% 86,205 9.6% 6/30/1993 197,282 208,024 10,742 94.8% 92,867 11.6% 6/30/1994 213,541 230,026 16,485 92.8% 94,180 17.5% 6/30/1995 237,713 249,049 11,336 95.4% 99,847 11.4% 6/30/1996 266,740 269,186 2,446 99.1% 105,230 2.3% 6/30/1997 304,684 297,490 (7,194) 102.4% 110,189 -6.5% 6/30/1998 353,057 348,966 (4,090) 101.2% 113,729 -3.6% 6/30/1999 402,875 400,224 (2,651) 100.7% 126,817 -2.1% 6/30/2000 453,954 437,750 (16,204) 103.7% 134,088 -12.1% 6/30/2001 470,672 486,702 16,030 96.7% 145,059 11.1% 6/30/2001 470,672 495,359 24,687 95.0% 145,059 17.0% 6/30/2002 463,102 553,947 90,845 83.6% 153,580 59.2% 6/30/2003 458,857 601,173 142,316 76.3% 143,164 99.4% 6/30/2004 494,987 645,351 150,364 76.7% 149,782 100.4% 6/30/2005 538,789 693,871 155,082 77.6% 162,149 95.6% 6/30/2006 588,228 734,377 146,149 80.1% 155,855 93.8% 6/30/2006 588,228 735,793 147,565 79.9% 155,855 94.7% 6/30/2007 634,763 758,427 123,663 83.7% 159,250 77.7% 6/30/2007 634,763 763,539 128,776 83.1% 159,250 80.9% 6/30/2008 650,227 822,205 171,978 79.1% 153,982 111.7% 6/30/2009 665,298 859,485 194,187 77.4% 149,925 129.5% 6/30/2010 641,819 904,480 262,662 71.0% 141,459 185.7% 6/30/2011 624,665 928,609 303,944 67.3% 121,631 249.9% 6/30/2012 597,107 940,939 343,832 63.5% 125,003 275.1% 6/30/2013 600,330 948,562 348,232 63.3% 125,858 276.7% 6/30/2014 655,998 1,012,393 356,396 64.8% 126,639 281.4% 6/30/2015 706,774 1,021,378 314,604 69.2% 123,415 254.9%

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Tucson Supplemental Retirement System June 30, 2015

Actuarial Section 56

Tucson Supplemental Retirement System

Schedule of Employer Contributions

Fiscal Year Ended

June 30,

Annual Required

Contribution

Actual City

Contribution

Percentage Contributed

1996

8.55 %

8.18 %

95.67

%

1997 8.05 8.38 104.10 1998 8.05 8.38 104.10 1999 7.41 7.91 106.75 2000 6.07 7.35 121.09 2001 6.77 7.35 108.57 2002 6.30 7.35 116.67 2003 8.41 8.41 100.00 2004 11.17 11.17 100.00 2005 14.06 14.06 100.00 2006 14.83 14.83 100.00 2007 15.04 15.04 100.00 2008 15.21 15.21 100.00 2009 14.37 14.37 100.00 2010 16.84 16.84 100.00 2011 18.02 18.02 100.00 2012 23.38 23.38 100.00 2013 28.77 28.77 100.00 2014 27.09 27.09 100.00 2015 26.95 27.50 102.04 2016 27.03 N/A N/A 2017 25.52 N/A N/A

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uatio

n

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d

(Em

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ate

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tion)

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Po

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ered

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) (2

) (3

)

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1

$ 44

,496

,039

$ 72

,419

,436

$ 86

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,322

$164

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,134

10

0.0

%

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%

54

.8 %

6/

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992

49,2

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0

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216,

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630

100.

0

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0.

0

Tucson Supplemental Retirement System June 30, 2015

Actuarial Section 57

Page 75: TUCSON SUPPLEMENTAL RETIREMENT SYSTEM (A Component … · narrative introductionto financial statement highlights, overview and analysis for fiscal ... retirement system asset portfolio.

Tuc

son

Supp

lem

enta

l Ret

irem

ent

Syst

em

Com

para

tive

Sche

dule

of

Ann

ual P

ensi

on B

enef

its P

aid

Yea

r E

ndin

g Ju

ne 3

0

R

etir

ed

Mem

bers

A

nnua

l Pe

nsio

ns

%

In

crea

se

N

o. o

f Act

ive

Per

Ret

ired

Pe

nsio

ns a

s %

of

Act

ive

Payr

oll

A

vera

ge

Pens

ions

A

ctua

rial

Pre

sent

V

alue

of

Pens

ions

Exp

ecte

d R

emov

als

No.

Pe

nsio

ns

19

89 1

78

0

$ 5,

344,

719

17

.6 %

4.

2 2

6.

6 %

$ 6,

852

$

46,5

56,3

52

26

.6

$

133,

860

1990

83

2 6,

488,

714

21.4

3.

9

7.5

7,79

9 57

,430

,128

28

.5

150,

864

1991

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5

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,419

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29

.8

172,

608

1992

96

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3

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,612

9.

4 3.

2

11.3

10

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,449

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35

.8

263,

340

1995

1 1,

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11,4

29,4

02

7.7

3.1

11.4

10

,732

10

2,51

1,72

8 35

.8

270,

600

1996

1,

105

12,2

36,2

98

7.1

3.1

11.6

11

,074

10

9,57

2,67

2 37

.7

302,

952

1997

1 1,

156

13,3

91,1

85

9.4

3.0

12.2

11

,594

11

9,50

8,31

2 39

.4

325,

440

1998

1,

208

14,4

79,4

76

8.1

2.9

12.7

11

,986

12

9,34

5,81

6 42

.4

370,

344

1999

1 1,

260

15,7

21,8

65

8.6

2.8

12.4

12

,478

13

9,80

5,83

2 44

.2

402,

504

2000

1 1,

301

16,9

66,0

42

7.9

2.8

12.7

13

,041

15

0,52

7,13

6 46

.2

445,

464

2001

1 1,

355

18,5

05,2

47

9.1

2.7

12.8

13

,657

16

1,74

0,96

8 47

.1

484,

776

2002

1 1,

442

21,2

73,1

62

15.0

2.

5

13.9

14

,753

18

7,50

8,56

8 53

.3

622,

236

2003

1 1,

742

29,7

67,5

00

39.9

1.

9

20.8

17

,088

27

5,19

3,38

4 58

.2

742,

908

2004

1 1,

753

30,4

91,8

64

2.4

2.0

20.4

17

,394

28

6,69

8,08

4 55

.7

717,

888

2005

1 1,

793

32,0

27,3

05

5.0

2.0

19.8

17

,862

29

8,39

5,39

6 58

.3

781,

152

2006

1 1,

878

35,0

91,4

68

9.6

1.7

22.5

18

,686

32

6,82

8,08

8 61

.1

857,

760

2007

1 2,

018

39,8

83,0

32

13.7

1.

6

25.0

19

,764

37

1,49

7,68

0 66

.3

977,

328

2008

2,

307

49,4

89,6

43

24.1

1.

4

32.1

21

,452

47

3,24

0,97

6 74

.4

1,13

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9 20

09

2,36

5 50

,810

,927

2.

7 1.

3

33.9

21

,485

49

4,92

3,02

1 63

.8

994,

553

2010

2,

450

53,1

15,2

67

4.5

1.2

37.5

21

,680

52

5,20

0,23

2 58

.9

948,

815

2011

2,

709

61,7

10,5

76

16.2

1.

0

50.7

22

,780

61

4,49

7,20

2 63

.5

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0.

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0

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9 0.

9

53.6

23

,543

66

1,29

2,06

1 73

.7

1,30

1,40

9

Tucson Supplemental Retirement System June 30, 2015

Actuarial Section 58

Page 76: TUCSON SUPPLEMENTAL RETIREMENT SYSTEM (A Component … · narrative introductionto financial statement highlights, overview and analysis for fiscal ... retirement system asset portfolio.

Tuc

son

Supp

lem

enta

l Ret

irem

ent S

yste

m

Sche

dule

of R

etir

ees a

nd B

enef

icia

ries

Add

ed to

and

Rem

oved

from

Rol

ls

Fisc

al Y

ear

Add

ed to

Rol

ls

A

nnua

l N

umbe

r A

llow

ance

s

Rem

oved

from

Rol

ls

A

nnua

l N

umbe

r A

llow

ance

s

Rol

ls E

nd o

f Yea

r

N

umbe

r A

nnua

l Allo

wan

ce

Ave

rage

A

nnua

l A

llow

ance

Perc

enta

ge

Incr

ease

in

Allo

wan

ce

6/

30/2

005

68

$3

,498

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42

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1 $

31,9

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17

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6 10

1 $2

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53

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8 $

35,0

92,3

08

18,6

86

4.61

%

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7 21

3 $6

,055

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36

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03,3

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8 $

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19,7

64

5.77

%

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8 31

3 $1

0,00

1,85

7 24

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95,2

46

2,30

7 $

49,4

89,6

43

21,4

52

8.54

%

6/30

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9 11

2 $2

,005

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54

$6

84,1

15

2,36

5 $

50,8

10,9

27

21,4

85

0.15

%

6/30

/201

0 14

1 $3

,089

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56

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84,9

35

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0 $

53,1

15,2

67

21,6

80

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%

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/201

1 33

2 $9

,880

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73

$1

,284

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2,

709

$ 61

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22

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5.

07%

6/

30/2

012

64

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48

69

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2,70

4 $

61,7

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64

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32

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%

6/30

/201

3 96

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719

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0.

75%

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30/2

014

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01

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764

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09%

6/

30/2

015

127

$3,1

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78

82

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99,6

98

2,80

9 $

66,1

33,2

17

23,5

43

1.24

%

Actuarial Section 59

Tucson Supplemental Retirement System June 30, 2015

Page 77: TUCSON SUPPLEMENTAL RETIREMENT SYSTEM (A Component … · narrative introductionto financial statement highlights, overview and analysis for fiscal ... retirement system asset portfolio.

Tucson Supplemental Retirement System June 30, 2015

Actuarial Section 60

SUMMARY OF BENEFIT PROVISONS

JUNE 30, 2015

NORMAL RETIREMENT (NO REDUCTION FACTOR)

Eligibility: Tier 1 – Members hired before July 1, 2011. Age 62, or a combination of age and creditable service equal to 80 (for those hired on or after July 1, 2009, eligibility at age 62 requires a minimum of 5 years of accrued service). Tier 2 – Members hired on or after July 1, 2011. Age 65 with 5 years of service or a combination of age and creditable service equal to 85 and the attainment of age 60.

Amount - Creditable service times 2.25% of average final compensation for Tier 1 and 2.00% of average final compensation for Tier 2.

Average Final Compensation - The average monthly creditable compensation for the period of 36 consecutive months during which the member’s creditable compensation was the highest during the 120 months immediately preceding the date of retirement for Tier 1 and 60 consecutive months during which the member’s creditable compensation was the highest during the 120 months immediately preceding the date of retirement for Tier 2. Effective July 1, 2000, accrued unused sick leave at the final salary may be substituted for an equal number of hours at the beginning of the 36 month period for Tier 1.

DEFERRED RETIREMENT (VESTED TERMINATION)

Eligibility - 5 or more years of accrued service. Deferred retirement benefits for terminated vested employee becomes automatic at age 62 (age 65 for Tier 2) or when a combination of age and creditable service equals 80 (85 with the attainment of age 60 for Tier 2), unless the member elects to withdraw the employee contribution account in lieu of a deferred retirement benefit. In addition to the eligibility listed above, the term-vested member may chose an Early Retirement (minimum age of 55 for Tier 1 and 60 for Tier 2 and minimum service of 20 yrs) subject to the same reduction – reduced by ½ of 1% per month for each month (6% per year) retirement precedes normal retirement eligibility.

Amount - An amount computed as for normal retirement.

DISABILITY RETIREMENT

Eligibility - Eligibility requires 10 or more years of credited service and a disability that is total and permanent.

Page 78: TUCSON SUPPLEMENTAL RETIREMENT SYSTEM (A Component … · narrative introductionto financial statement highlights, overview and analysis for fiscal ... retirement system asset portfolio.

Tucson Supplemental Retirement System June 30, 2015

Actuarial Section 61

Amount - An amount computed as for normal retirement. Disability Retirement Benefits are offset, if the combination of all employer-provided benefits exceeds 100% of the members adjusted income base, then members pension benefit from TSRS is reduced so income does not exceed the 100% maximum allowed.

PRE-RETIREMENT SURVIVOR BENEFITS

Eligibility - 5 or more years of accrued service and not eligible to retire.

Amount - Lump sum payment equal to twice the member’s contributions, with

interest.

Eligibility - After attaining eligibility for retirement, in the event the member dies prior to submitting an application for retirement benefits:

Amount - If the member is married, a default provision allows the member’s spouse to elect to receive either a lump sum payment of twice the member’s contributions account, or receive a lifetime annuity benefit determined as if the member had elected a joint & last survivor benefit of 100% survivor annuity prior to death. If the member is not married and has named a single non-spousal beneficiary, the beneficiary may elect to receive either a lump sum payment of twice the member’s contributions account, or receive a 15 year annuity benefit determined as if the member elected payment of a 15 year term certain annuity. If the member has named multiple designated beneficiaries, a lump sum refund of the member’s account balance will be paid to the named beneficiaries.

OTHER TERMINATION BENEFITS

Eligibility - Termination of employment without eligibility for any other benefit.

Amount - Accumulated contributions and interest in members account at time of

termination.

EMPLOYEE CONTRIBUTIONS

Interest is credited to member accumulated contributions accounts as simple interest two times per year at an annual interest rate of 6%. For those hired prior to July 1, 2006, employee contributions are 5.00% of salary. For those hired between July 1, 2006 and June 30, 2011 (Tier I variable class) and for those hired after July 1, 2011 (Tier II variable class), employee contributions are 50% of the respective Normal Cost for each class, with a floor of 5.0%. The employee contributions for the Tier I and Tier II variable classes for FY 16/17 are 6.60% and 4.89%, respectively, before application of the floor or roundup policy.

Page 79: TUCSON SUPPLEMENTAL RETIREMENT SYSTEM (A Component … · narrative introductionto financial statement highlights, overview and analysis for fiscal ... retirement system asset portfolio.

Tucson Supplemental Retirement System June 30, 2015

Actuarial Section 62

CITY CONTRIBUTIONS

City Contributions are actuarially determined; which together with employee contributions and investment earnings will fund the obligations of the System in accordance with generally accepted actuarial principles. (Please refer to the Funding Policy in Section I of this report).

POST-RETIREMENT ADJUSTMENTS

The TSRS Board has established formal policies to determine whether the system shall fund an annual supplemental post-retirement benefit payment to retired members and beneficiaries.

Page 80: TUCSON SUPPLEMENTAL RETIREMENT SYSTEM (A Component … · narrative introductionto financial statement highlights, overview and analysis for fiscal ... retirement system asset portfolio.
Page 81: TUCSON SUPPLEMENTAL RETIREMENT SYSTEM (A Component … · narrative introductionto financial statement highlights, overview and analysis for fiscal ... retirement system asset portfolio.

STATISTICAL SECTION

Page 82: TUCSON SUPPLEMENTAL RETIREMENT SYSTEM (A Component … · narrative introductionto financial statement highlights, overview and analysis for fiscal ... retirement system asset portfolio.

Tucson Supplemental Retirement System June 30, 2015

Statistical Section 63

Discussion of Statistical Section This section of the Tucson Supplemental Retirement System’s comprehensive annual financial report (CAFR) provides detailed financial and non-financial information, often considered relevant to users. The statistical section presents certain information on a trend basis; that is, a summary of information that is provided for each year in a ten-year period. Other non-trend schedules present demographic and participation information for our active and retired membership. Each schedule is defined below with an explanation and an identification of the source of the data. Statement of Changes in Plan Net Position This schedule provides the additions and deductions to the plan for the past ten years. The change in net position is provided to illustrate whether or not sufficient resources are available in the current fiscal year to cover plan benefits. This schedule is developed using the Statements of Changes in Plan Net Position for the past ten years. Retired Members by Type of Benefit This schedule provides the number of retired members by type of benefit. The TSRS plan benefits include payments for normal retirement benefits, disability benefits, survivor benefits, and term certain benefits paid to members, beneficiaries and alternate payees. The schedule is developed using TSRS’ database. Average Monthly Benefit Payments to New Retirees This schedule provides the average monthly benefit payments made to new retirees, using six ranges of years of credited service by year. This information is provided to illustrate changes in benefit payments as the amount of service earned increases and indicates the number of employees retired during each of the last 10 years. This schedule is developed using TSRS’ database. Demographics of Retired and Active Members This schedule provides the age demographics of all retirees, survivors and beneficiaries of retired members for this year only. Similarly, age demographics for the systems active membership are indicated as well as the relative composition of membership categorized by Tier. This schedule is developed using TSRS’ membership database. Employee and Employer Contribution Rates This schedule provides the contribution rates paid by the Plan sponsor and by City employees during the past 10 years. This schedule is a historical summary of the actual rates paid. Benefit and Refund Deductions from Net Position by Type This schedule provides the benefits paid to all service and disability retirees during each of the last 10 years. In addition, the lump sum payments to members elected to participate in the End of Service program since 2007 and refunds associated with member deaths, separation from service and transfers to other retirement systems are summarized. This schedule is developed using the Statements of Changes in Plan Net Position for the past ten years. Retiree Benefit and Service Summary This schedule indicates average retiree benefits paid to retirees, based on the number of years retired, indicating eight age categories and the years of credited service served. This schedule is developed using TSRS’ membership database.

Page 83: TUCSON SUPPLEMENTAL RETIREMENT SYSTEM (A Component … · narrative introductionto financial statement highlights, overview and analysis for fiscal ... retirement system asset portfolio.

Tucson Supplemental Retirement System June 30, 2015

Statistical Section 64

2015 2014 2013 2012 2011Additions City Contributions 33,985,523$ 34,189,288$ 34,523,315$ 27,429,666$ 23,432,916$ Employee Contributions 6,512,180 6,636,833 9,200,262 7,685,264 7,562,294 Purchase of Service 1,019,665 701,711 1,014,301 1,280,263 3,772,923 Contributions from Other Sources - - - 50,000 50,000 Transfers from Other Systems - - - 204,404 700,009 Total Contributions 41,517,368$ 41,527,832$ 44,737,878$ 36,649,597$ 35,518,142$

Investment Income Net Gain (Loss) in Fair Value of Investments 22,467,139$ 111,063,362$ 73,705,613$ 566,661$ 106,114,437$ Interest 6,393,666 5,901,539 4,174,559 6,319,874 6,361,246 Dividends 5,915,832 6,786,728 7,158,084 4,981,339 5,589,052 Securities Lending Income 163,140 134,036 184,733 157,562 124,158 Miscellaneous Income 20,783 91,630 98,400 16,833 45,681 Net Income from Investment Activity 34,960,560$ 123,977,295$ 85,321,389$ 12,042,269$ 118,234,574$

Less Investment Expenses: Securities Lending Fees 65,676$ 54,589$ 78,604$ 68,370$ 35,027$ Investment Services 4,092,449 4,022,476 3,805,861 3,460,730 3,871,641 Total Investment Expense 4,158,125$ 4,077,065$ 3,884,465$ 3,529,100$ 3,906,668$ Net Investment Gain 30,802,435$ 119,900,230$ 81,436,924$ 8,513,169$ 114,327,906$ Total Additions 72,319,803$ 161,428,062$ 126,174,802$ 45,162,766$ 149,846,048$ Deductions Benefits 65,216,458$ 63,477,074$ 62,191,480$ 61,693,408$ 58,247,882$ Refunds 2,395,893 2,524,939 2,631,221 2,247,225 2,350,626 Transfers to Other Systems - - - - 2,928,607 Administrative Expenses 650,405 735,739 689,252 550,604 728,642 Total Deductions 68,262,756$ 66,737,752$ 65,511,953$ 64,491,237$ 64,255,757$

Net Change in Plan Net Position 4,057,047$ 94,690,310$ 60,662,849$ (19,328,471)$ 85,590,291$

Statement of Changes in Plan Net Position - Last Ten Fiscal Years

For the Fiscal Years Ending June 30,

Tucson Supplemental Retirement System

Page 84: TUCSON SUPPLEMENTAL RETIREMENT SYSTEM (A Component … · narrative introductionto financial statement highlights, overview and analysis for fiscal ... retirement system asset portfolio.

Tucson Supplemental Retirement System June 30, 2015

Statistical Section 65

2010 2009 2008 2007 2006

Additions City Contributions 23,260,609 21,279,535$ 23,902,286$ 22,670,418$ 24,319,911$ Employee Contributions 8,041,748 8,156,115 8,591,124 8,120,057 8,197,437 Purchase of Service 1,556,832 1,565,164 5,186,289 1,008,980 1,157,572 Contributions from Other Sources 50,000 140,512 130,784 41,595 - Transfers from Other Systems 1,652,656 1,589,190 2,012,917 3,794,093 620,601 Total Contributions 34,561,845 32,730,516$ 39,823,400$ 35,635,143$ 34,295,521$

Investment Income Net Gain (Loss) in Fair Value of Investments 40,143,355 (155,121,980)$ (50,256,771)$ 85,493,111$ 48,195,450$ Interest 7,441,435 11,087,144 10,815,803 7,649,621 4,144,414 Dividends 6,743,309 7,219,584 10,009,694 9,537,064 8,187,034 Real Estate Income - - - - - Securities Lending Income 91,625 359,394 1,881,706 2,594,083 1,683,061 Miscellaneous Income 3,640 120,820 152,848 6,038 53,855 Net Income from Investment Activity 54,423,364 (136,335,038)$ (27,396,720)$ 105,279,917$ 62,263,814$

Less Investment Expenses: Securities Lending Fees 25,401 197,429$ 1,708,227$ 2,517,081$ 1,618,232$ Investment Services 4,096,007 4,580,028 4,129,652 3,433,243 3,096,323 Total Investment Expense 4,121,408 4,777,457$ 5,837,879$ 5,950,324$ 4,714,555$ Net Investment Gain 50,301,956 (141,112,495)$ (33,234,599)$ 99,329,593$ 57,549,259$ Total Additions 84,863,801 (108,381,979)$ 6,588,801$ 134,964,736$ 91,844,780$ Deductions Benefits 51,700,541 51,996,508$ 46,211,560$ 40,419,922$ 33,475,950$ Refunds 2,110,360 1,689,956 1,265,235 1,573,276 1,219,263 Transfers to Other Systems 898,085 2,655,061 4,340,520 11,886,941 482,469 Administrative Expenses 672,622 864,382 519,346 485,469 433,350

Total Deductions 55,381,608 57,205,907$ 52,336,661$ 54,365,608$ 35,611,032$

Net Change in Plan Net Position 29,482,193 (165,587,886)$ (33,321,180)$ 221,514,188$ 152,793,083$

For the Fiscal Years Ending June 30,

Tucson Supplemental Retirement SystemStatement of Changes in Plan Net Position - Last Ten Fiscal Years

Page 85: TUCSON SUPPLEMENTAL RETIREMENT SYSTEM (A Component … · narrative introductionto financial statement highlights, overview and analysis for fiscal ... retirement system asset portfolio.

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Tucson Supplemental Retirement System June 30, 2015

Statistical Section 66

Page 86: TUCSON SUPPLEMENTAL RETIREMENT SYSTEM (A Component … · narrative introductionto financial statement highlights, overview and analysis for fiscal ... retirement system asset portfolio.

Tucson Supplemental Retirement System June 30, 2015

Statistical Section 67

Tucson Supplemental Retirement System

Average Monthly Payments to New Retirees June 30, 2015

Retirement Effective DatesFor Fiscal Years Ending June 30 <5 5-9 10-14 15-19 20-24 25-29 > 30

2015Avg Monthly Benefit n/a 803$ 1,077$ 1,670$ 2,202$ 2,968$ 3,864$ Avg Monthly Final Avg Comp. n/a 5,267$ 3,679$ 4,698$ 4,645$ 5,118$ 5,506$ Number of Active/EOSP retirees n/a n/a n/a n/a n/a n/a n/a

2014Avg Monthly Benefit n/a 635$ 1,024$ 1,665$ 2,364$ 2,693$ 4,188$ Avg Monthly Final Avg Comp. n/a 4,040$ 4,005$ 4,255$ 4,870$ 4,617$ 6,061$ Number of Active/EOSP retirees n/a n/a n/a n/a n/a n/a n/a

2013Avg Monthly Benefit 507$ 578$ 1,275$ 1,669$ 2,060$ 2,956$ 3,876$ Avg Monthly Final Avg Comp. 5,609$ 3,077$ 4,497$ 4,121$ 4,041$ 4,680$ 5,124$ Number of Active/EOSP retirees n/a n/a n/a n/a n/a n/a n/a

2012*Avg Monthly Benefit 237$ 563$ 923$ 1,829$ 1,428$ 2,401$ 2,745$ Avg Monthly Final Avg Comp. 2,728$ 3,355$ 3,240$ 4,787$ 2,767$ 3,869$ 3,745$ Number of Active/EOSP retirees n/a n/a n/a n/a n/a n/a n/a

2011*Avg Monthly Benefit 519$ 560$ 964$ 1,913$ 2,303$ 2,998$ 3,780$ Avg Monthly Final Avg Comp. 2,865$ 3,350$ 3,352$ 4,774$ 4,509$ 4,899$ 5,044$ Number of Active/EOSP retirees 5 12 18 24 83 107 58

2010*1-9 10-14 15-19 20-24 25-29 >30

Avg Monthly Benefit 481$ 931$ 1,466$ 2,374$ 2,386$ 3,376$ Avg Monthly Final Avg Comp. 3,229$ 2,976$ 3,841$ 5,148$ 4,251$ 4,871$ Number of Active/EOSP retirees 23 16 13 35 23 13

2009*Avg Monthly Benefit 620$ 1,117$ 1,452$ 2,165$ 3,475$ 2,811$ Avg Monthly Final Avg Comp. 3,474$ 3,823$ 3,671$ 4,281$ 5,775$ 3,942$ Number of Active/EOSP retirees 14 13 12 23 15 9

2008*Avg Monthly Benefit 645$ 1,076$ 1,502$ 2,258$ 3,133$ 3,944$ Avg Monthly Final Avg Comp. 4,302$ 4,542$ 3,869$ 5,094$ 5,310$ 6,222$ Number of Active/EOSP retirees 18 16 27 74 84 63

2007Avg Monthly Benefit 648$ 725$ 1,360$ 2,010$ 2,999$ 3,730$ Avg Monthly Final Avg Comp. 3,947$ 2,922$ 3,687$ 4,258$ 5,086$ 5,589$ Number of Active Retirees 12 11 33 42 55 48

2006Avg Monthly Benefit 610$ 802$ 1,304$ 1,974$ 3,141$ 4,001$ Avg Monthly Final Avg Comp. 4,046$ 2,803$ 3,245$ 4,006$ 4,970$ 5,561$ Number of Active Retirees 20 14 25 27 33 20

2005Avg Monthly Benefit 563$ 912$ 1,095$ 1,803$ 3,291$ 3,615$ Avg Monthly Final Avg Comp. 3,518$ 3,722$ 3,017$ 3,884$ 5,623$ 4,883$ Number of Active Retirees 8 3 10 20 17 10

Years of Credited Service

*includes EOSP Participants still employed and alt. payees receiving benefits

Page 87: TUCSON SUPPLEMENTAL RETIREMENT SYSTEM (A Component … · narrative introductionto financial statement highlights, overview and analysis for fiscal ... retirement system asset portfolio.

Tucson Supplemental Retirement System June 30, 2015

Statistical Section 68

Retired Members

Ages Male Female Total Male Female Total

Under 55 19 36 55 2 18 2055 to 59 115 116 231 2 20 2260 to 64 324 226 550 4 29 3365 to 69 437 209 646 3 41 4470 to 74 277 146 423 1 60 6175 to 79 167 92 259 4 55 5980 to 84 126 47 173 4 47 5185 to 89 48 31 79 2 25 2790 to 94 18 17 35 4 18 2295 to 100 7 6 13 1 4 5101 and over 0 1 1 0 0 0

Total 1,538 927 2,465 27 317 344

Active Members

Ages Male Female Total Male Female Total

Under 20 0 0 0 0.00% 0.00% 0.00%20 to 29 75 90 165 2.81% 3.38% 6.19%30 to 39 263 208 471 9.87% 7.81% 17.68%40 to 49 409 358 767 15.35% 13.43% 28.78%50 to 59 588 358 946 22.06% 13.43% 35.49%60 to 69 208 96 304 7.81% 3.60% 11.41%70 and over 8 4 12 0.30% 0.15% 0.45%

Total 1,551 1,114 2,665 58.20% 41.80% 100.00%

Composition of Active TSRS Membership by Tier

Membership Payroll % of PayrollTier 1 - Fixed Contribution Rates 1,566 79,947,180 64.78%Tier 1 - Variable Contribution Rates 360 14,852,698 12.03%Tier 2 - Variable Contribution Rates 739 28,614,682 23.19%

2,665 123,414,560 100.00%

Tucson Supplemental Retirement System

Active Members Percentage Distribution

Demographics of Retired and Active MembersJune 30, 2015

Retirees Survivors/Beneficiaries

Page 88: TUCSON SUPPLEMENTAL RETIREMENT SYSTEM (A Component … · narrative introductionto financial statement highlights, overview and analysis for fiscal ... retirement system asset portfolio.

Tucson Supplemental Retirement System June 30, 2015

Statistical Section 69

Fiscal Year

Total Contribution (percentage)

Fixed Variable Fixed Variable02/03 5.0 n/a 8.41 n/a 13.4103/04 5.0 n/a 11.17 n/a 16.1704/05 5.0 n/a 14.06 n/a 19.0605/06 5.0 n/a 14.83 n/a 19.83

06/07* 5.0 7.5 15.04 12.54 20.04 07/08* 5.0 8.084 15.21 12.126 20.21 08/09* 5.0 7.788 14.47 11.682 19.47 09/10* 5.0 8.852 17.13 13.278 22.1310/11* 5.0 9.428 18.57 14.142 23.5711/12* 5.0 11.62 24.05 17.43 29.0512/13* 5.0 13.976 29.94 20.964 34.9413/14 Tier I 5.0 27.32 32.32

13/141 Tier I 6.715 25.61 32.32 13/141 Tier II 5.06 27.26 32.32

14/15 Tier I 5.0 27.22 32.22 14/151 Tier I 6.67 25.55 32.22 14/151 Tier II 5.14 27.08 32.22

*Employees hired on or after July 1, 2006 pay a variable rate, which changes annually, to 40% of the actuarially recommended

contribution rate (ARC) for the system.

Note 1: Effective July 1, 2013, variable rates are based on the normal cost of the Benefit Tier of membership. Numbers shown

are prior to roundup policy.

Tucson Supplemental Retirement System

Employer Rate (percentage)

Employee and Employer Contribution RatesLast Ten Fiscal Years as of June 30, 2015

Employee Rate (percentage)

Page 89: TUCSON SUPPLEMENTAL RETIREMENT SYSTEM (A Component … · narrative introductionto financial statement highlights, overview and analysis for fiscal ... retirement system asset portfolio.

Tucs

on S

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tal R

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tions

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Type

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2014

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Type

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Ret

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59,3

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Jun

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,

Tucson Supplemental Retirement System June 30, 2015

Statistical Section 70

Page 90: TUCSON SUPPLEMENTAL RETIREMENT SYSTEM (A Component … · narrative introductionto financial statement highlights, overview and analysis for fiscal ... retirement system asset portfolio.

<55

55-5

960

-64

65-6

970

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75-7

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484

318

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182

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645

1883

Not

es:

(1) A

vera

ge B

enef

it fo

r all

retir

ees i

s $1,

962

per m

onth

(2) #

of R

etire

es in

clud

es a

ltern

ate

paye

es a

nd su

rviv

ors

Tucs

on S

uppl

emen

tal R

etire

men

t Sys

tem

Retir

ee B

enef

it an

d Se

rvic

e Su

mm

ary

# yr

s Re

tired

Aver

age

Bene

fit

(1)

Tota

l M

onth

ly

Bene

fit p

mts

# of

Re

tiree

s (2)

Age

at 6

/30/

15Ye

ars o

f Cre

dite

d Se

rvic

e

Tucson Supplemental Retirement System June 30, 2015

Statistical Section 71

Page 91: TUCSON SUPPLEMENTAL RETIREMENT SYSTEM (A Component … · narrative introductionto financial statement highlights, overview and analysis for fiscal ... retirement system asset portfolio.

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